Housing Inventory Remains Tight
Many major U.S. markets still don’t have housing supply to meet demand, but theories differ about what’s behind the inventory shortage
This much is certain: Housing inventory is still tight in many major U.S. markets. May’s inventory was down 15.7% year over year, according to data from the National Association of Realtors. What’s less certain is what is causing the shortage. Realtors, economists, homebuyers and home sellers have been lighting up the blogosphere for months with news that there simply aren’t enough houses for sale in many major markets, but they do not definitively point to a cause.
The lack of inventory has pushed up home prices. The U.S. median price for a previously owned home was 7% higher in May, compared to the same month in 2014. The price and the limited selection are discouraging buyers — most of whom prefer to view 10 to 15 houses before making a purchase, according to the Realtors association.
The tight inventory trend runs counter to what usually happens amid economic recovery, when homeowners move to take advantage of new job opportunities or to upgrade homes as they gain confidence in the economy. It also bucks the usual seasonal trend.
A recent survey conducted by the Realtors association and reported by Reuters news agency indicates homeowners now are remaining in their homes for an average of 10 years — instead of what has typically been a 7-year span.
So, what’s going on? Economists and Realtors offer a variety of hypotheses about the tight housing inventory. Some say baby boomers nearing retirement are remaining in their homes to start their golden years with low (or no) mortgage payments. Some speculate the tight market is having a counterintuitive effect on potential sellers’ psyches: Their fear of fighting other buyers for available homes outweighs their desire to reap the benefits of selling for a good price in a tight market. Do-It-Yourself has even entered the conversation, with some Realtors musing over whether homeowners who upgraded their homes when the housing market was weak now have less incentive to move.
Some ruminate over whether the Great Recession yielded permanent change — upending usual economic patterns. Here’s their thinking: Some homeowners who bought at peak prices simply don’t have the equity to sell. In addition, despite signs of recovery, people aren’t relocating as much for jobs as they once did when the economy improved. And people may be hesitant to buy a new home for fear that the market will once again take a dive and leave them in a house that’s worth less than they paid for it. Finally, homeowners who refinanced at historically low interest rates meant to spur economic growth now may be living so affordably that they don’t want to move.
These last few theories align with data-driven analysis from a 2014 study from technology-centric real estate brokerage Redfin. The firm’s research uncovered four categories of homes that are in a holding pattern. Here’s an excerpt from Redfin’s report (with the percentage of homes affected in parentheses):
Home categories contributing to tight inventory:
- Low equity (19%) — homeowner owes more than 80% of the value of the home; usually purchased or refinanced during the housing bubble, 2004-2009.
- Purchased or refinanced in the past seven years (14%) — owned by the current owner for less than seven years.
- Low mortgage rate (16%) — home was purchased or refinanced at interest rates below 4.25%, usually between 2011 and 2013.
- Company- or investor-owned property (3%) — owner has purchased five or more homes in a metro area since 2004.
Combining these factors, Redfin says, more than half of all existing homes are unlikely to be put up for sale without significant changes in the housing market.