Single-family home sales fell dramatically from almost 7 million at the peak in 2005, to 4 million in 2010. Since the trough, sales have risen to 4.9 million in 2013. Assuming the late 1990s and early 2000s exhibited a more normal market balance, a typical level of home sales is 5.6 million per year made up of 900,000 new-home sales and 4.7 million existing home sales. That means we are short at least 700,000 annual sales.

Three factors make this an extremely conservative estimate. First, as much as one-quarter of the 2012 and 2013 existing home sales were to investors, and that trend is declining. Owner-occupant buyers will have to offset the investor demand. Second, as the number of households grows, the same rate of turnover will mean higher absolute numbers. Third, the recession and slow recovery have produced as much as 4 million home owners that would have sold and purchased but didn’t because of market and employment uncertainties, low equity, and other relatively temporary conditions. That pent-up demand will increase the number of sales for at least the next few years.

First-time buyers expand the need for more homes even if they aren’t the primary purchasers of those new homes.

New-home sales suffered a disproportionate share of the collapse. Single-family new-home sales peaked at 1.3 million in 2005, and fell to 300,000 in 2011—a 77 percent fall. Existing home sales, supported in part by distressed sales to investors, fell 40 percent from peak to trough. Even though catastrophic from an industry view, the differential makes economic sense. As demand for more homes dried up, households lost their owned homes through foreclosure, and the number of newly formed households shrank, the existing supply of homes was more than sufficient to satisfy demand. Adding more inventory to a saturated market made little sense.

While an exaggeration, the basic laws of economics took over and additions had to nearly cease for a commodity in excess supply. Destroying the existing stock was not a widespread alternative. As a result, new-home sales that did make up a consistent and long held 16 percent of all sales have dropped to about half that share.

A significant contributor to that shift has been the first-time home buyer. Existing home sales to current homeowners do nothing to increase the need for more housing, at least on a national scale. First-time buyers expand the need for more homes even if they aren’t the primary purchasers of those new homes. First-time buying was 40 percent of the existing market and 30 percent of the new-home market in more stable periods. Those shares, of a smaller market, have dropped to 27 percent and 16 percent, respectively.

The lower share of both markets presents a double whammy on the new-home market. In more stable market periods about half of the sales of existing homes to first-time buyers results in the seller buying a new home. Not only are first-time home buyers a smaller share of the market, but the existing home sellers are much less likely to purchase a new home. The conversion rate has fallen from near half to less than a quarter. Some of the drop is due to the fact that as much as 25 percent of existing home sales are an empty house so there is no former homeowner to buy a new home.

A new home disadvantage has been the limited supply of new homes on the market. From 1995 to 2003, an average of 326,000 new homes were available for sale. That number slipped to 150,000 in 2011 and 2012, and only recently has increased to 200,000. By comparison, an average of 1.7 million existing homes were available from 1995 to 2003. That number dipped slightly to 1.6 million in 2010, and recently has risen to 2 million. As the new-home inventory continues to build, that hurdle will lessen.

First-time home buyers continue to struggle with their own financial limitations but as the economy expands and jobs become more available and better paying, the core 25- to 34-year-old first-time buyers will come back.