U.S. housing market is 1.5 million housing units below a "balanced market," finds Freddie Mac

The U.S. housing market is short at least 760,000 for-sale housing units and short another 760,000 for-rent housing units, according to Freddie Mac economists in a research article published earlier this month.

That means the U.S. housing market is at least 1.5 million units away from being a “balanced market".

“To bring the vacancy rate, both rental and homeowner, back in line with historical averages, the U.S. would need to add an additional 1.5 million vacant for-sale and for-rent homes,” wrote Freddie Mac economists.

What do Freddie Mac economists think will happen if the U.S. housing market doesn’t add additional supply?

“Without such units, the pressure on housing markets will persist,” wrote Freddie Mac economists.

They also suggest that this analysis—which calculates how many units would be needed to bring the national vacancy rate back in line with the historical average—“underestimates” the overall housing shortage.

“Additionally, the vacant housing undersupply metric is almost certainly a dramatic underestimate of the total housing shortage for the U.S. This is because this metric does not account for latent housing demand and vacant housing that is not for sale or for rent,” wrote Freddie Mac economists.

Back in February, ResiClub PRO members (paid tier) received a roundup of undersupply/oversupply studies conducted by 11 different research firms. This included a 3.8 million shortage estimate by Freddie Mac, which used a different methodology than the study mentioned above.

“Not to be confused with our analysis of the total U.S. housing supply shortage which showed an undersupply of 3.8 million units, the 1.5 million units highlighted in our latest economic outlook measures for-sale and for-rent units, and does not account for latent housing demand or vacant housing that is not for sale or for rent. Over the last several years, our research on the housing supply deficit has been widely followed and while we’ve seen housing inventory improve slightly, a substantial undersupply still exists and remains one of the most significant obstacles facing the housing market today,” Len Kiefer, deputy chief economist at Freddie Mac, tells ResiClub.

Toll Brothers—a homebuilder ranked No. 382 on the Fortune 500 list—just adopted a $10K flat fee for all buyers agents in Orlando, a local agent tells ResiClub. The homes are mostly in the $800K to $1.2M range. The commissions used to be 3% on the base + bonus depending on the neighborhood, the Orlando agent says.

Another agent, this one in Charlotte, also told ResiClub today that Toll Brothers is moving to $10K flat agent commission in their market come June 1st.

Affordability adjustments, such as buydowns, have given homebuilders an advantage over resale in many housing markets.

Look no further than Lennar—a homebuilder ranked No. 119 on the Fortune 500—which is currently promoting an FHA fixed rate of 4.25% in San Antonio.

This rate is "available for the life of the loan" for qualified buyers who put 3.5% down and have a minimum credit score of 680.

[Click here to read ResiClub’s guide on how to find buydown deals in your market].

Why such juicy offers in San Antonio?

Active for-sale inventory in the San Antonio metro area is above pre-pandemic levels. According to the Lance Lambert Inventory Tracker and the Lance Lambert House Price Tracker, San Antonio is currently one of the nation’s softest markets, meaning buyers have gained power there.

Despite the increase in incentives since spring 2022, most homebuilders still have profit margins above pre-pandemic levels, giving them the runway to continue offering buydowns. ResiClub will continue to keep a VERY close eye on homebuilder margins and net gross orders.