Why are so few homes for sale
Buyers on the hunt for a new home are finding fewer choices as the supply of existing homes for sale has hit the lowest level since 1999. This low inventory compared to the demand for homes has begun to drive prices up. Starter homes are being hit the hardest and buyers who are looking for homes in that category are struggling to find inventory in the lower price ranges, forcing buyers to consider much smaller homes in order to get a foot in the door. The supply of homes in all price ranges is only enough to last about three and half months compared to a normal average of a six month supply of homes on the market. Some very busy markets have little over a month’s worth of inventory, and the competition for these homes is great, with the bidding wars and home selling within days.
During the housing boom of the early 21st-century, new construction added many more homes each year. But after the bubble burst, contractors found themselves facing stricter rules and regulations for construction loans, and they began to build fewer homes on speculation, waiting until they actually have a contract before they start to build a home.
New home construction continues to be weak, contributing to the overall limited number of homes for sale on the market. Construction prices have increased with a rise in materials and labor costs. As the need for new housing increases with the addition of many new buyers, especially those millennials who are now reaching the point in their lives when they would like to own their own home, the lack of new construction pushes these buyers to enter into the existing home market. The result is that there are more people looking to purchase a home than there are homes available to be purchased.
After the great recession, people started to reevaluate their priorities and became less inclined to use their homes as a status symbol. They stopped feeling that it was necessary to trade up a larger home and began to be more satisfied with what they already had. As a result fewer existing homes found their way to the market. People have changed their mindset, and more and more homeowners are staying put.
People are also staying put in their homes for other reasons. With the rising of home prices, many people would be basically trading straight across for a home that is perhaps not as large or as nice as the one they are currently in. It is also possible that they may not get enough out of their current home to make a down payment on a new home. And for many people whose income has not risen at the same rate that housing prices have risen in their area, buying a home that is comparable to the one that they currently own will probably take a much larger bite out of their monthly income. Also, some people feel that they will have to live further away from their work in order to find a venture home than the one they currently own, and some people feel that with the limited inventory of homes to look at, they may not be able to find a replacement home and so they are reluctant to put their existing home on the market.
While millennial's are now entering the housing market in greater numbers, baby boomers are staying put. With 21% of the overall population, baby boomers are finding that the negative aspects of moving are outweighing the gains they may feel they would receive from selling their current home and purchasing a new one. While downsizing may be something that they are thinking about and interested in doing, baby boomers are facing the same dilemma as entry-level homebuyers. There is fierce competition for the smaller, entry-level homes, which drives the prices higher. Someone looking at downsizing may see the prices that they would have to pay for a smaller residence and may decide that it's better just to keep the home that they have. Moving may also require that a baby boomer leave friends that they have known for years, communities that they have become comfortable in, and family that may live nearby. And because they have decided to stay put, that means that there is one less home on the market.
Millennial's, on the other hand, are at the point in their lives when they are either purchasing their first home, or they are moving because of job changes, or because their family has outgrown their home. The increase in the number of people trying to purchase a home becomes a catch-22 situations in the real estate market. Because of the fact that the number of would-be buyers is higher than the number of homes that are available for sale, we are now in what is called a seller’s market, meaning that sellers can price their homes higher and even can even anticipate the possibility of bidding wars on their homes. But because these prices are higher, many buyers are being shut out because they are finding that they are not able to find a home that they qualify for.
The difference between the acceleration of home prices now, and the acceleration of home prices that we saw during the housing bubble of 2006 and 2007, is that the acceleration now is based on supply and demand. Which is a much healthier way for prices to increase and results in a more stable market. The rate that home prices are rising has started to slow down, which is good news for potential buyers. Hopefully, as we see the pendulum swing back-and-forth, it will eventually land on a more normal price acceleration rate, giving buyers and sellers both more confidence and encouraging the increase in new home construction.