New Home Starts versus Population Growth: Why we aren’t in a Bubble

Posted in National Housing Market | Posted on 05-29-2013 | Written by J.W. Colvin IV

I recently read an article in a local business paper that had an eye catching front page headline, “Another Housing Bubble?” I admit I read the article the first time with a bias, but then I wanted to stack up the facts and see where we were at. The article highlights two different points of view. One view was from a couple of industry watchers and the other from a new home buyer in the market. Among the industry watchers there was some skepticism based on population growth and a little disbelief at how quickly ‘speculative’ home building has rebounded, but the home buyer was exasperated because he had very few options to choose from. If we are in an overbuilt situation, then how can we have home buyers who can’t find new homes to purchase? Here are my thoughts.

New single family home construction is not outpacing population growth. According to the Census Bureau, at the beginning of 2010 the area we define as the Triangle (Orange, Durham, Chatham, Wake, Johnston, Franklin, Granville, and Vance Counties) had 655,701 households, and was expected to grow on average 1.7% per year from 2010 to 2013 to 690,513 households, a gain of 34,812 households. Historically, 39% of new households generate increased demand for multifamily dwellings, with the remaining 61% moving into single family dwellings. This would mean that from the beginning of 2010 to

March of 2013, the Triangle should have added approximately 21,235 new single family homes to meet new household demand. Our survey of new single family construction shows 20,346 new home starts from January 2010 to March 2013. We survey demand in the form of new home occupancy as well, which we believe is the best measure of demand, and a great measure of population growth. During that same time line (Jan. ’10 – Mar. ’13) 20,787 formerly unoccupied, newly constructed homes became occupied. This means we actually didn’t build enough homes in that time period to meet demand, and new home buyers had to look to remnants of the housing crash for new home shelter. The rest had to stay in apartments or in their current residences, i.e. delaying their decision to purchase a new home.

The author of the article highlights this point when she interviewed a person who moved to the area in 2010. After delaying purchase of a new home so he could sell his original home he said, “A lot of the inventory was older, and I was not looking for a project…It was frustrating.” I think this is the key point in the article and is much more in line with what we are seeing in the market as well as hearing from new home builders, realtors, and relocation specialist. Not only are we not overbuilt, but what inventories we may still have left over from the real bubble that burst in 2007, is not aligned with what buyers need or desire today.

Measuring pent-up demand or putting a number on how many homes a market should build is tough because there are so many moving parts, but measuring real demand is very straightforward you just have to put the leg work in. When I look at all the uncertainty in the national and global economy, it’s not hard to empathize with the gun shy nature of market watchers and participants who think we are moving too quickly. But that is the very thing that keeps markets from entering a bubble mode. When market participants are keeping their eyes and ears open, measuring twice, and looking at all the angles the highest and best use tend to rise to the top. When no one is asking the ‘what if’s’, or questioning the market, that’s when we should start asking the question, “Is this Another Bubble?”

I recently read an article in a local business paper that had an eye catching front page headline,
“Another Housing Bubble?” I admit I read the article the first time with a bias, but then I wanted to stack
up the facts and see where we were at. The article highlights two different points of view. One view was
from a couple of industry watchers and the other from a new home buyer in the market. Among the
industry watchers there was some skepticism based on population growth and a little disbelief at how
quickly ‘speculative’ home building has rebounded, but the home buyer was exasperated because he
had very few options to choose from. If we are in an overbuilt situation, then how can we have home
buyers who can’t find new homes to purchase? Here are my thoughts.
New single family home construction is not outpacing population growth. According to the Census
Bureau, at the beginning of 2010 the area we define as the Triangle (Orange, Durham, Chatham, Wake,
Johnston, Franklin, Granville, and Vance Counties) had 655,701 households, and was expected to grow
on average 1.7% per year from 2010 to 2013 to 690,513 households, a gain of 34,812 households.
Historically, 39% of new households generate increased demand for multifamily dwellings, with the
remaining 61% moving into single family dwellings. This would mean that from the beginning of 2010 to
March of 2013, the Triangle should have added approximately 21,235 new single family homes to meet
new household demand. Our survey of new single family construction shows 20,346 new home starts
from January 2010 to March 2013. We survey demand in the form of new home occupancy as well,
which we believe is the best measure of demand, and a great measure of population growth. During
that same time line (Jan. ’10 – Mar. ’13) 20,787 formerly unoccupied, newly constructed homes became
occupied. This means we actually didn’t build enough homes in that time period to meet demand, and
new home buyers had to look to remnants of the housing crash for new home shelter. The rest had to
stay in apartments or in their current residences, i.e. delaying their decision to purchase a new home.
The author of the article highlights this point when she interviewed a person who moved to the area in
2010. After delaying purchase of a new home so he could sell his original home he said, “A lot of the
inventory was older, and I was not looking for a project…It was frustrating.” I think this is the key point
in the article and is much more in line with what we are seeing in the market as well as hearing from
new home builders, realtors, and relocation specialist. Not only are we not overbuilt, but what
inventories we may still have left over from the real bubble that burst in 2007, is not aligned with what
buyers need or desire today.
Measuring pent-up demand or putting a number on how many homes a market should build is tough
because there are so many moving parts, but measuring real demand is very straightforward you just
have to put the leg work in. When I look at all the uncertainty in the national and global economy, it’s
not hard to empathize with the gun shy nature of market watchers and participants who think we are
moving too quickly. But that is the very thing that keeps markets from entering a bubble mode. When
market participants are keeping their eyes and ears open, measuring twice, and looking at all the angles
the highest and best use tend to rise to the top. When no one is asking the ‘what if’s’, or questioning the
market, that’s when we should start asking the question, “Is this Another Bubble?”

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