Consumers and people within the real estate industry alike have been lamenting the shortage of available housing inventory for a while. According to Matthew Gardner, who is the Chief Economist for Windermere, that problem is not going to improve any time in the near future.
According to the National Association of Realtors, roughly 1.9 Million homes were sold in May of 2017. Which is the same level of sales we saw 17 years earlier. If you add to that, the fact that the country has added something like 21 Million new households in that same amount of time, you could understand why that might be alarming. Indeed, many of those new households moved in to rentals, but the fact remains that there are still not enough homes hitting the market to serve the growing need/demand.
Mr. Gardner suggests that there are four reasons for this:
The first reason for the shortfall is purely demographic. As “Boomers” age, they are not following the trends of previous generations. Many are staying in the workforce far longer than their predecessors, and, as they are postponing retirement, they do not feel compelled to downsize. In fact, almost two-thirds of Boomers plan to age in place and not move even after retirement. Without this anticipated supply of homes from downsizing Boomers, there aren’t enough homes for move-up buyers, which in turn limits the supply of homes for first-time buyers.
Secondly, as a nation we just aren’t moving as often as we used to. When he analyzes mobility, it is clear that people no longer have to relocate as frequently to find a job that matches their skill set. There has been a tangible drop in geographic specificity of occupations. Where we used to move to find work, this is no longer as prevalent, which means we are moving with less frequency.
Thirdly, builders aren’t building as many homes as they could. This is essentially due to three factors: land supply/regulation, labor, and materials. The costs related to building a home have risen rapidly since the Great Recession, and this is holding many builders back from building to their potential. Furthermore, in order to justify the additional costs, many of the homes that are being built are larger and more expensive, and this is no help for the first-time buyer who simply can’t afford a new construction price tag.
Fourthly, while the general consensus is that home prices have recovered from the major correction that was seen following the recession, this is actually not the case in some markets. In fact, there are 32 U.S. metro areas where home prices are still more than 15 percent below the pre-recession peak. As equity levels remain low, or non-existent, in these markets, many would-be sellers are waiting until they have sufficient equity in their homes before putting them on the market.
Another factor to be considered, Mr. Gardner points out, is that interest rates will inevitably be on the rise. And when this happens, how many potential sellers may elect not to sell because they want to hang on to their current interest rate?
At the end of the day, there are many reasons why there is a shortage of inventory currently for sale in our housing market. It is not simply just one thing.
At Real Estate Investments Northwest, we strive to ease this problem by doing as many real estate transactions that we can to bring beautiful homes that have been completely rehabilitated back to the market.
Much of this article is sourced from Attom Data Solutions, “Housing News Report”, Volume 11, Issue 8. As Chief Economist for Windermere, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew is the former Principal of Gardner Economics, and has over 28 years of professional experience both in the U.S. and U.K.