New home construction has lagged since the 2007-09 recession, and now the chickens are coming home to roost: Builders would need to construct 3.8 million single-family homes just to catch up with existing demand, and the shortage is pushing up housing prices and threatening to slow down the entire economy.

That’s the conclusion of an analysis by Freddie Mac Chief Economist Sam Khater, who says the problem is particularly acute for first-time buyers. Last year, builders completed just 65,000 entry-level homes, even as 2.38 million renters became first-time homebuyers.

“As we navigate our way through the year and get beyond the pandemic, we expect the housing supply shortage to continue to be one of the largest obstacles to inclusive economic growth in the U.S.,” Khater said in the report. “Simply put, we must build more single-family entry-level housing to address this shortage, which has strong implications for the wealth, health and stability of American communities.”

The national median home price hit $353,000 in March, up 17 percent from a year ago, according to Redfin’s latest housing report — the biggest jump on record.

Not surprisingly, on a scale of 1 to 100, builder confidence has soared from 30 at the beginning of the pandemic to 83 in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Anything over 50 is considered a good market. Builder confidence is highest in the West (92) but lower in the Midwest at (72).

In addition to a shortage of listings and rising prices in many markets, rising mortgage rates are another potential headwind.

In their latest quarterly forecast, Freddie Mac economists project 30-year fixed-rate loans will average 3.7 percent next year, up from 3.2 percent this year. While sales of new and existing homes are projected to hit 7.1 million this year, Freddie Mac predicts that will fall to 6.7 million in 2022.

For more on shortages of new and existing homes, see Inman’s Inventory Insanity series:

Email Matt Carter

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