Caveat Emptor: Keep Building

QI TAKEAWAY —   Home builders have property appreciation at their back to mathematically justify keeping the building machine up and running. A shift to supply conditions north of long-run averages could, however, flag a move out of the right tail for pricing power after an impossibly long run of undersupply that’s left most investors in the sector vastly unprepared.

  1. New homes under construction rose to 1.451 million in October, eclipsing the 2000s peatilk of 1.426 million circa March 2006; the last time units under construction were higher was the 1970s, though the current boom critically lacks the same underlying population growth rates
  2. Unsold existing single-family home inventories sit at 2.4-months, a record low with no prior reading below 3 in data back to 1982; meanwhile, the undersupply of new single-family homes in 2020 has given way to prints closer to the long-term average of 6 months in 2021
  3. A record 28% of new single-family homes for sale are “Not Started” – a massive backlog of unbuilt homes; however, with buying conditions, per University of Michigan, inverted for the first time since the 1980s, demand will be challenged by the high pricing environment