Freddie Mac: 'Housing shortage' has delayed the formation of 1 million households

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Earlier this week, I briefly mentioned Freddie Mac’s latest analysis, which estimates that the U.S. housing stock—currently at 147 million units—is 3.7 million units below the 150.7 million housing units that the government-sponsored enterprise estimates are currently needed in the U.S. housing market. Simply put, Freddie Mac thinks there’s a housing shortage of 3.7 million units.

One reader asked me: “How are we supposed to solve this without [more people] living together.”

In the view of Freddie Mac economists, more young folks living with their parents or friends is one of the ways the housing market and country have absorbed this ‘housing shortage.’

1 million. That’s the number of U.S. households that haven't formed—and continue to live with relatives or friends—due to the affordability strain caused by the 3.7 million 'housing shortage', estimates Freddie Mac economists in their latest report.

“If housing costs as measured by rents were more affordable, we estimate that the U.S. would have added 1 million more households with most of the growth coming from younger households,” wrote Freddie Mac economists.

The other way the housing market—and the country—has absorbed the ‘housing shortage,’ according to Freddie Mac, is through higher home prices and rents than would be seen in a market with enough units to meet underlying demographic needs.

What do they mean by that?

Prices adjust to balance supply and demand. When demand exceeds supply, prices rise until fewer buyers can afford homes. Those who can afford them get them, and those who can't—such as the one million households that haven't formed—do not.

“The root cause of decreased housing affordability is the fact that housing supply has not increased enough to match demand. Inadequate housing supply leads homeowners and renters to bid up the sale price and rent of available housing, which puts a squeeze on affordability,” wrote Freddie Mac economists.

How did Freddie Mac conduct its study?

First, economists at Freddie Mac calculated how much demand for housing should exist based on the underlying population and age demographics, as well as the number of households that would form if high housing costs weren’t preventing people from moving out of their parents’ homes. Freddie Mac estimates that 1 million U.S. households haven’t been formed because a lack of housing supply has strained affordability.

Second, economists at Freddie Mac examined vacancy rates to determine how many vacant homes the housing market needs to function efficiently. Freddie Mac concluded that the market requires an additional 2.7 million vacant housing units to be considered balanced. Using these two components, Freddie Mac concluded that the national housing market is short 3.7 million housing units. (Note: They didn’t publish a regional analysis.)

“While there is reason to be optimistic about the housing market given the demographic tailwind and the cohort of millennials and young adults entering the housing market, high mortgage rates have put a damper on affordability. Rising home prices have also had an effect and are directly related to the supply shortage,” wrote Freddie Mac economists.

Do most economists agree with Freddie Mac that the U.S. housing market is short 3.7 million homes?

Back in February, ResiClub PRO members (paid tier) received our exclusive roundup of undersupply/oversupply studies conducted by 11 different research firms. At the time, Fannie Mae had the highest ‘housing shortage’ estimate at 4.4 million units, while Zonda had it the lowest at 1.0 million units.

Among the 11 studies we collected, the average firm estimated that the U.S. housing market is underbuilt by roughly 2.7 million units.

A lot of assumptions are made on the demand side of the deficit calculation, Orphe Divounguy, senior economist at Zillow, told ResiClub earlier this year.

“Housing supply [stock] is very clear cut, you can observe it directly from the data, you can see how many units are being built,” Divounguy says. “The demand side, however, is unobserved—you have to make a number of assumptions in order to come up with a reasonable estimate for how much demand there is for housing.”

Do analysts think the ‘housing shortage’ varies regionally?

Back in June—several months after ResiClub conducted our ‘housing shortage’ estimate roundup—economists at Zillow shared their updated estimate of the nation’s housing shortage with ResiClub, raising the deficit to 4.5 million units, up from their previous estimate of 4.3 million. That now puts Zillow’s shortage estimate above Fannie Mae’s 4.4 million estimate.

However, on a regional level, Zillow estimates some housing markets have very big shortages (San Francisco), while some other markets barely have any shortage (Memphis)👇

Does a ‘housing shortage’ mean local home prices can’t fall?

In ResiClub’s view, when a particular set of circumstances destructs housing demand enough to shift the local supply-demand equilibrium to a point where absorption slows sharply, active inventory builds quickly, and sellers cannot sell at prior comparable prices, a local market may experience a home price correction—even if housing analysts consider that market to have a "housing shortage."

Consider Austin, for example. Zillow estimates the metro area market has a shortage of 61,322 housing units relative to its underlying demographics. Despite this estimated "shortage," home prices in the Austin metro area—which soared by +72.5% during the Pandemic Housing Boom between March 2020 and June 2022—have since fallen -21.2% from their 2022 peak, according to ResiClub’s price tracker. During the frenzy, Austin became overheated as deep-pocketed buyers from New York and California rushed in. Since then, the market has corrected, as the stretched market has had to rely more on local incomes.

ResiClub PRO’s December webinar: 2025 housing market outlook

On the last Monday of each month, we host a webinar exclusively for ResiClub PRO members (paid tier).

Our upcoming webinar on Monday, December 30, will provide an outlook for the 2025 housing market. During the session, we’ll…

• Overview: ResiClub’s comprehensive roundup of forecasts for home prices, existing home sales, homebuilding, mortgage rates, and employment. (The most thorough roundups you’ll find).

• Overview local home price forecasts for around 400 housing markets

• Regional buyer-seller power dynamics for early 2025

• Outline potential housing market headwinds—and tailwinds—in 2025

• Exclusive results from recent ResiClub surveys

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