August, 2019 – Although situations vary widely by city, the nation overall is now facing at least the fifth year of declining inventory of homes for sale. As a result, home prices have increased most notably in starter and mid-range homes. With supply low and demand to own high, it’s easy to see how a seller’s market has been created. Let’s take a deeper dive into the reasons why so fewer families and individuals are moving.
1. Baby Boomers Are Staying Put. Boomers are healthier than past generations and are able to stay in their homes longer. Or for many, downsizing would cost the same or more than their current home, so why move? With more than three-quarters of baby boomers owning homes, a significant portion of the complete market contributes to low inventory for would-be buyers of all ages.
2. Investors Enjoy Healthy Rent Rates. Millions of distressed single-family homes were bought during the financial crisis and converted into rental properties. With a competitive housing market squeezing out buyers, many families find it easier to rent, which has created a booming rental market. Investors with numerous properties have no incentive to put their homes on the market. And to compound the problem, buyers are more heavily competing with investors for purchasing property.
3. Home Owners Want to Hold onto Their Low Mortgage Rates. In the past several years, the average mortgage rate was below 4%. Interest rates have increased moderately, but enough to keep many people where there are. “I’ll never get another rate this low,” has become the mantra of home owners who enjoy record-low rates.
4. Builders Don’t Cater to Entry-Level Buyers. More than half of all new construction homes are for the $300,000+ buyer. The recession years for builders caused many skilled workers to leave the industry, which created a shortage. That means higher labor costs. Also, regulations to build new homes have made new construction more expensive, including environmental protection laws, infrastructure fees, and rules for minimum lot sizes. Regulations can equate to up to a quarter of a home’s cost. All of these factors translate to higher priced homes.
5. A Lack of Distressed Properties Means Slimmer Pickings. People looking for fixer uppers have far fewer homes to choose from. In the post-crisis era from 2009 to 2012, the volume of distressed properties on the market was about 100,000 a month. Today that inventory has been slashed to about 25,000 a month.
6. Low-Equity Home Owners Can’t Afford to Sell. Millions of home owners, while not under water, still only have between zero and ten percent positive equity in their homes. That doesn’t leave them with enough to convert into a new down payment, coverage of closing costs, and Realtor fees. As a result, it makes more sense for them to stay put than buy a new home.
7. “I Don’t Want to Be a Buyer” and “Where Would I Go?” Although the seller’s market has enticed many to reap a high return on their home, there are many others who realize that selling high means buying high. They don’t want to get into bidding wars for a home. Or they fear that their choices will be so limited that they won’t find anything affordable that is better than what they own.