New Homes Sales Graph Tells Many Tales

The graph of new homes sales from 1963 to present tells an interesting tale. The point that stands out in my mind is that the graph climbed ever upward for approximately 13 year period. Coincidentally, the Baby Boomers were were born from 1945 to 1964 in the United States and this 13 year period would describe the generations ever growing need for new homes.

While the echo boom is much the same size (about 75 million), the issue is not the size but the increase. The U.S. housing market’s needs for housing as demonstrated prior to this period held in a pretty stable range that fits well with the projected U.S. population growth projections for the coming generation. Based on this pre-baby boom surge, a post recession new household requirement of 700,000 to 800,000 homes per year could be a safe bet (this allows for the much larger base level of the U.S. but accepts the prior cycles as more representative).

For investors, this expectation requires significant consideration. If one accepts this premise and if one accepts the premise that many of these homes will come from the already existing stock as many mcmansions become homes for multiple family. New construction could end up at significantly less than the 700,000 to 800,000 because of this potentially very large substitution effect.

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