Almost anyone who has searched for a home recently knows that there are not enough homes for sale. Price appreciation is accelerating again because there is a shortage of homes on the market.
"Overall buyer demand will remain very robust, particularly at the entry-level in 2020," states senior economist George Ratiu in a recent real estate forecast.
Why is that millennial, first-time home buyers and Generation X move-up buyers have more homes to choose from? Who is responsible for the shortage of homes for sale and why?
"People of all generations are staying in their homes longer. The typical seller in 2019 owned their home for 10 years whereas owners used to list every 6-7 years," states Jessica Luatz, VP of demographics and behavioral insights for the National Association of Realtors.
Baby Boomer homeowners are more hesitant to sell the family home than previous generations. The most common reason for selling in 2019 was to move closer to friends and family. In previous years, the top reason to move related to job opportunities or accommodation of family size.
Another factor in the shortfall is due to current homeowners have lower mortgage rates. Over the last three years, the interest rate on outstanding mortgages averaged 3.9%, according to the Dept of Commerce. This plays a major role in homeowners not wanting to give up their home. As mortgage rates rise, homeowners will be hesitant to sell and adds to the shortage of homes for sale.
Major factor #2 - new home construction slowed over the last ten years and the U.S. population expanded by more than 20 million people during the 2010s.
Additionally, builders are ignoring entry-level buyers. According to the Census Bureau, of the nearly 585,000 new construction homes sold in 2019, 56% of those homes were priced at $300,000 and higher. Builders counter that land is higher and there is a shortfall of skilled construction works due to many dropping out of the trade during the Great Recession and younger people are not filling in the gaps or replacing them.
Homebuilders state that regulations such as infrastructure fees and environmental protections adds tens of thousands to the cost of the home. Michael Nest, VP of the National Association of Home Builders stated that regs account for 1/4 of the cost of each home build. Freddie Mac accounted a similar statement in 2017, "Land-use regulations have become more burdensome and making it costlier to build". Local zoning and regulations are enacted by officials and responding to constituents, limiting the supply. In addition to safety concerns, communities want to ensure that property value stays intact / rises.
However, there is great news to report. Just last week, NAHB Greag Ugalde stated that "Low interest rates and a healthy labor market combined with a need for additional inventory are setting the stage for further home building gains in 2020." The increase has already begun, according to the January 2020 US Census Bureau Report - single-family housing starts were up 11.2% and attained the highest level in thirteen years.
What does all this mean for homebuyers?
- Be realistic about how long it will take to find and buy a home
- Be ready to make a competitive offer when you find that home.
- Save money for your down payment and build your credit score so that you can obtain the best mortgage deal.
When you are ready to take the first step in buying, building or selling your home, True Realty stands ready to assist you and help determine the best approach for your personal situation. Give us a call today to schedule your free and non-obligatory consult. If you decide that now isn't the time to make a move, no worries. We won't hassle you as it isn't our style. We want your experience with our True Realty team to be a level of professionalism that you'll be eager to tell your friends and family about. Ready to get started? Call (720) 305-0757.