Annualized housing starts crossed the 1 million mark in April for the first time this year, but little of that improvement came on the single-family side—and that's a serious problem, says the National Association of Realtors (NAR).
Measuring new homebuilding against employment numbers—which only recently recovered from their recessionary decline—NAR finds that historically, there is one new home built for every 1.5 jobs added to the economy. As of the first quarter, 32 states and the District of Columbia are above that ratio, meaning job growth has far outpaced new construction over the past three years.
"Our analysis found that a majority of states are constructing too few homes in relation to local job market conditions," explained NAR chief economist Lawrence Yun. "This lack of construction has hamstrung supply and slowed home sales."
The difference was greatest in Florida, Utah, California, Montana, and Indiana, where the ratio of new employment to housing starts is 3 or higher. Those areas, Yun warns, will continue to see "persistent housing shortages and affordability issues" unless homebuilding rises to match local job gains.
At the same time, NAR says price growth "looks to be manageable" in states where new jobs are near commensurate with new home construction, including Mississippi, Arkansas, Connecticut, Alabama, and Vermont.
With limited supply and rising costs already creating a serious challenge for homebuyers—particularly first-time buyers—Yun says it's crucial for builders to step up production, even as they struggle with their own challenges, including rising construction costs and limited credit access for smaller firms.
"It's critical to increase housing starts in these states facing shortage conditions or else prospective buyers may struggle with options and affordability if income growth cannot compensate for rising home prices," Yun said.