When Will the Housing Supply Normalize?

The housing supply is expected to normalize in two to four years, Barclays Capital projects, assuming that household formation rates increase to 1.1 million and construction remains slightly above 2011 levels.

Household formation--which is a reflection of population growth and housing affordability--has drastically dropped since 2007, reaching about 300,000 to 500,000 per year. Historically, the rate is about 1.25 million.

Home prices will likely see a 1 percent appreciation this year (that’s after falling 3 to 4 percent through March), Barclays Capital estimates. It is also projecting a 1 percent price appreciation in 2013, followed by 2 percent to 3 percent appreciation levels.

But to reach those goals, the housing supply needs to continue to shrink first.

"We think this will be achievable only if household formation exceeds net construction for a sustained period," Barclays says.

Source: “Barclays: Housing Supply Could Normalize in 2014,” HousingWire (March 2, 2012)