Housing shortage will drive recovery

Palm Coast Observer
Opinion

When the housing bubble burst, the market was flooded with spec houses and distressed properties. Distressed properties continue to dominate sales. Most estimates signal a continuing flow of distressed properties for several months, even years. It doesn’t sound much like a housing shortage anytime soon.
Yet, a housing shortage might be just around the corner.

The Multiple Listing Service currently lists only 1,237 single-family homes for sale. That’s about 50% above the typical inventory during the boom years. More importantly, it’s less than half the inventory of four years ago when prices were tumbling. Flagler County has 493 single-family homes classified as “pending” or “contingent,” meaning they are under contract.

Meanwhile, area homebuilders are on the sidelines. Banks are not lending for speculative construction. Plus, new home appraisals often come in below construction costs because of sales prices of comparable (but distressed) properties. There have been only 12 building permits issued by the city of Palm Coast during the first two months of 2011. This compares to several hundred per month during the same months in 2005.

The National Association of Home Builders’ recent Housing and Economic Outlook report estimates there are up to 2 million unformed household units based on overall growth trends. Single-family new-home construction is running more than 1 million units per year below the trend line. The deficit is a reflection of builder caution and the lack of available credit to fund new construction for both speculative building and build-to-contract. New home inventory is at its lowest point in the past 20 years. Florida is among the states with a deficit.

Analysts point to the shadow inventory of distressed properties that has yet to come onto the market. CoreLogic estimates the shadow inventory comprises 1.8 million homes, down slightly from one year ago. If nothing changes (no new demand, no easing of credit) the deficit will be 1 million homes greater than the shadow inventory and growing by 1 million units per year.

The home building engine will be tough to start. Expect a lag time of at least a year from the realization that more construction is needed and the arrival of additional new construction homes into the “for sale” inventory. Meanwhile, demand will put pressure on supply. Prices will rise.