Why More New Homes Will Not Be Built

Logan Mohtashami wrote a great article for Housing Wire last week on “Why We Can’t Build Our Way Out of This Hot Housing Market.” He reminded us that many home builders went out of business a dozen years after they over-built and those remaining homebuilders all remember that lesson. Thus, “Builders have learned to tightly control inventory by retreating from construction when demand becomes slack.”
Builders want their months of inventory to be just under 4.3 months to maximize their profits Logan says and when month of inventory exceed 4.3 months they begin slowing down construction. And once they hit 6.5 MOI construction noticeably slows down.
Logan reminds us that “Builders are here to make money; they’re not here to fix the low inventory issues of the existing home sales market.” Thus, housing supply will remain constrained for a very long time if not forever.