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Is the U.S. Housing Market Already Overbuilt?

While we are confident that demand for new construction rental properties will remain strong, we agree that supply will eventually...

Is the U.S. Housing Market Already Overbuilt?

On Oct. 12, CNBC ran a story titled “Today’s tight housing market is already overbuilt, one analyst says.”

Assuming this analyst is right about slowing population growth and household formation, he may be right about the market being overbuilt … but not just yet.

According to the Burns US Housing Analysis and Forecast published on Oct. 20, home prices and construction volumes will continue to grow for the next couple of years because U.S. homebuilders are still playing catch-up from the recession of 2008. Supply-chain issues and buildable-land and labor shortages are at play, too. The authors also predict an increase in build-for-rent construction despite a decline in housing starts in 2024. 

While we are confident that demand for new construction rental properties will remain strong, we agree that supply will eventually align with demand and possibly exceed it, causing home buying to slow down and prices to flatten or decline somewhat for a while. This is the nature of the business cycle. That said, we remain optimistic about the Memphis area.

Memphis is the logistics capital of the United States. Its economy is robust, and with Ford’s recent announcement about its $5.6-billion investment in the Memphis area, we expect a surge of jobs and population, which will put upward pressure on real-estate values and rents. Our colleagues at Meridian Property Management report that new and recently built homes are being snatched up – despite higher rents. The tenants are high-wage earners who prefer the ease and convenience of new construction and seek the freedom of choice that renting offers.

Of course, it’s possible for the market to reach “overbuilt” status, but this assumes that builders will not recognize the slowdown in demand and reduce their building rates. We are committed to our business model and believe our investors are well positioned as demand for build-for-rent construction continues to grow, and rents increase at or above historical norms. Read/watch for yourself and let us know what you think.

Have any questions or comments? Please contact Wendy Dube, Client Relationship Manager, at wdube@meridianpac.com.