Housing Market Follows Elongated Supply Cycle

The housing market has followed its own elongated supply cycle for more than two decades. Housing market supply-side indicators show that the massive overbuild of new homes during the housing boom set in motion an extended period of underbuild that is still ongoing nearly ten years after the recession ended. This paper proposes a new metric to gauge the health of the housing market from the perspective of supply, with an eye toward predicting future construction activity. The metric adds yearly overbuilds and subtracts underbuilds during the past two decades, indicating whether the housing market is in balance. The analysis shows that the housing overbuild during the boom period reached nearly two and a half million units, but the subsequent underbuild has more than eliminated the housing surplus, leaving the market in short supply today.