Why Aren’t There Enough Homes for Sale?

Blog posted On January 04, 2018

Heading into 2018, the housing market is facing much of the same inventory problems, there are not enough homes for sale.  Limited inventory leads to home price appreciation and a competitive market.  First-time home buyers are hit especially hard as they struggle to save for a growing down payment amidst rising rents and sluggish wage growth.  So, why aren’t there enough homes for sale? 

Baby Boomers Not Moving

The first-time home buyer demographic has been hit particularly hard by a lack of starter homes for sale.  Traditionally, retirees downsize, families move up to larger homes, and first-time home buyers move into the starter homes.  However, in today’s market, Baby Boomers are staying put, leaving Generation X homeowners stuck in their starter homes and Millennials competing over a shrinking starter home pool.  75% of Boomers are homeowners, and 85% of those homeowners have no plans to move in the next year.  Boomers are living longer and working longer and are able to maintain their homes.  According to a Freddie Mac research report, Baby Boomers “have been slower than previous generations to sell the family home, thus exacerbating the shortage of houses for sale.”

Post-Recession Property Investors

After the Financial Crisis, real estate investors were able to purchase millions of single-family homes at low prices.  With low mortgage rates and rising rents, these landlords have no incentive to sell.  From 2005 to 2017, the number of owner-occupied homes dropped by 170,000 and the number of renter-occupied homes increased by 3,700,000. 

Low Mortgage Rates

Mortgage rates are historically low, with the average rate on an outstanding mortgage standing at just 3.8% for the past three years.  Homeowners who purchased their home or refinanced while rates were low are unlikely to make a move any time soon with federal interest rate hikes on the horizon.  CoreLogic chief economist Frank Nothaft explained, “the inventory of homes for sale, which is already low, is likely to remain that way if we see higher interest rates.”  

Builders Prefer Larger Homes

While new home construction is expected to rebound in 2017, home builders are building larger homes over starter homes because they are more profitable.  Out of the 473,000 homes built in the first three quarters of 2017, 55% were valued over $300,000.  Builders are also facing a shortage of skilled laborers, since the Financial Crisis. 

First-time home buyers entering the market should be prepared for a competitive landscape.  Improving the credit score, saving for a large down payment, and setting realistic expectations are some ways to find a home in 2018. 

Sources: NerdWallet