AP Photo/Rich Pedroncelli
Activity in the U.S. housing market has slowed to a level that even Fed chair Janet Yellen has said she's concerned about the recovery.
A lot of attention has been paid to the demand-side of the story. Specifically, there's concern that Americans don't want to buy homes, perhaps because they're not optimistic about the economy, or they're worried about the security of the jobs.
But an increasing number of economists are saying housing supply is the real problem, not homebuyer demand.
"This entire housing recovery since 2008 has not been driven by more demand but by less supply," wrote Deutsche Bank's Torsten Slok in a note to clients.
So, let's take a look at the supply-side bottleneck:There aren't enough vacant homes
The number of vacant homes has tumbled back to the long-term trend seen before the housing boom.
During the boom, the number of vacant homes was up 20% above the historical trend, but the correction in vacancies has been very sharp, writes Slok.
On the bright side, the homeowner vacancy rate has "stabilized recently at levels slightly above historical averages," writes Slok. Nevertheless, this is a clear sign that supply has tightened.
There aren't enough new homes
New single-family homes for sale remain near record-low levels. Again, this is largely a supply problem.
Slok notes that during the housing market bust, "homebuilding activity fell to historically depressed levels." The recovery saw the supply available new homes tighten.
"And this tightening should continue as housing completions remain well below historical averages and household formations," wrote Slok.
The recent harsh winter slowed homebuilding activity, which means any relief to tight housing inventory levels by way of new constructions has been pushed down the road.
The homes that are available for sale are 'obsolete'
"The lack of inventory is a key issue in this recovery cycle," according to Mark Fleming at CoreLogic. He pointed out that this supply story is only exacerbated by what he calls "housing obsolescence."
There are about 2.3 million existing homes for sale as of April. But there are "even fewer homes for sale that do not suffer from housing obsolescence — properties that are no longer desirable because their characteristics do not match what buyers are looking for in a home," Fleming wrote.
This includes homes that are in locations which are no longer popular or in neighborhoods that lack the amenities people want.
So what does all of this mean?
"Housing supply has tightened meaningfully and is near pre-crisis and even pre-boom levels on a number of indicators," writes Slok.
Another way of putting this is to say that the the distorted supply-demand dynamics of the boom and bust have now corrected to a normal level.
"The healing on the supply side appears to be largely finished, in our view, and any improvements in demand will likely have to be matched by stronger homebuilding activity going forward," continued Slok.
As mentioned when we began, lending conditions are favorable to buyers. Experts also point out that housing affordability is at historically high levels impacting the homeownership rate.
For now though, we'll have our eyes peeled for more news on the supply side, good or bad.
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