Strong Housing Demand Points to Better Times Ahead, Harvard Says

Beyond the current cyclical downturn in the nation’s home building industry, strong underlying demand for housing should produce a healthy resurgence in residential construction, according to a report published last month by the Harvard University Joint Center for Housing Studies.

According to the projections of the analysts who worked on the study, sustainable demand for housing is conservatively measured at 19.5 million for 2005 through 2014 — or an annual average of 1.95 million.

By 2007, yearly average projections for the period decline somewhat because of the oversupply that occurred in the market as a result of the housing boom. Analysts at Harvard calculate that the period they scrutinized may well have begun with an oversupply of 500,000 to 750,000 units, to which another 250,000 excess units were added in 2005 and 2006 as the boom began winding down.

However, even assuming that the extent of the oversupply was as large as 1 million, the economists reported that their projections of sustainable housing demand for 2007 through 2014 would be reduced only to an annual average of 1.82 million housing completions, not counting manufactured homes.

The average annual projection of 1.82 million is close to the 1.848 million homes that were actually started in 2003 at the start of the housing boom and significantly exceeds the number of homes that were built on average during the 10 years preceding 2003.

“Housing has always been a cyclical business, and we know that it is only a matter of time until we have worked down our inventories of unsold homes and can begin setting our sights on meeting a rising demand for housing,” said NAHB President Brian Catalde. “The demographic outlook clearly points to the need for a vigorous resurgence in home building to meet the housing needs of this country.”

The Harvard analysts note that the 19.5 million projected long-run demand is on the conservative end of the range of estimates that were considered in their study.

Source: NAHB News. View Article.

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