What a Democratic Sweep Could Mean For Housing?

Thursday, October 29, 2020 by Ivy Zelman

Filed under: existing home sales homebuilding household formation macro housing mortgage new home sales

As we enter the final days prior to the election, I can’t help ponder what the outcome of a Democratic sweep could mean for housing and our country, which appears to be a real potential outcome. To stay away from my political views, I’ll focus on what a sweep would mean specifically for the housing market.

While the Democrats are focused on supporting affordable housing with a proposed first-time buyer credit of $15,000, which would be advanceable and permanent, what they don’t appreciate are the ramifications of a further boost to demand in an already heated market. Resale inventory is at an all-time record low using our preferred measure of single-family inventory as a percent of households, currently at 1.0% versus a long-time trend line of 2.0% over the past 30 years and a peak of 2.9% during the great housing crash. As a result, the country has a massive deficit of affordable supply in the face of accelerating demand, pushing home prices higher at a low double-digit rate in many markets for first-time buyers.

While new construction is the only real solution to close this gap, homebuilders are struggling to meet this incredible demand for affordable housing. Frankly, there is a long list of impediments constraining supply that the politicians need to focus on – not the demand side of the equation! For example, builders are challenged to get the necessary approvals from local municipalities in markets across the country to increase the pipeline of development. While many markets claim that they want to offer more affordable housing, their actions show otherwise as they clearly capitulate to their constituents who just don’t want new affordable housing in their backyard.

In addition, the labor force to build our homes in this country is aging and has not adequately been rebuilt after the loss of the illegal immigrants who were the majority of the workforce during the previous boom period.

Finally, there is a dearth of developers who never returned post the great financial crisis, so many builders have been forced to self-develop and struggle to overcome expensive bank financing.

In summary, if the Democrats win the White House and the Senate, they need to juice supply, not demand!

What a Democratic Sweep Could Mean For Housing?

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