Almost anyone who has searched for a house in King County or the surrounding areas recently knows there just seem to not be enough houses for sale.
In October 2017, the whole nation had a 3-month supply of existing homes for resale. Meaning at the pace at that time, it would have taken 3 months to sell all the homes on the market. A supply under six months puts home buyers at a disadvantage!
Why don’t millennial, first-time buyers and Generation X move-up buyers have more to choose from? Who is responsible for the shortage of homes for sale and why?
*Boomers won’t move
More than 75% of baby boomers own their homes. For millennials to buy their first homes, and for homeowning Gen-X’ers to move up to their second home, boomers have to sell. But boomers are staying put.
During a recent survey, it was found that 85% of boomer homeowners planned to stay put over the next 12 months. The reasons for that could be that they’re living longer, they’re living healthier and so staying in place is more possible for them.
Boomers have been slower than other previous generations to sell their family home, thus exacerbating the shortage of houses for sale.
Also, thanks to rising home prices, would-be downsizers can’t find smaller homes that cost much less than their current homes. So they stay put. There’s no urgency to sell right now unless you have to.
*Landlords won’t sell
Potentially, millions of homes were converted to rentals after the foreclosure crisis. Those investors have no real incentive to sell. When a house goes up for sale, now you’re competing not only with your neighbor who wants to buy that house, you’re also competing with investors. This is what I believe to be, the greatest adversary for players in the Real Estate/ Mortgage game. This is the dragon in the high tower for many first time home buyers.
With greater demand for homes and less supply, home values rise. Meanwhile, rents are rising faster than home prices. Both of those factors tend to encourage landlords to hold onto those homes and rent them out.
*Owners are hooked on low mortgage rates
Mortgages averaged just 3.8% over the last 3 years, according to the Department of Commerce. People have no desire to potentially give up their really good interest rates.
As rates rise, homeowners tend to keep their homes a little longer. That means the inventory of homes for sale, which is already very low, is likely to remain that way if we see higher interest rates.
*Builders ignore entry-level buyers
In the first three-quarters of 2017, nearly 473,000 newly constructed houses were sold. 55% of those homes cost $300,000 or more. Of the new homes that we are being built, the vast majority are move-up products. They’re not for the entry-level buyer anymore.
Builders counter that they pay roughly $45,000 for a typical buildable lot (and its actually around three times that in the New England area.) They also are saying they face a shortage of skilled construction labor because experienced workers dropped out of the construction trades during the Great Recession, younger people aren’t replacing them, many job applicants can’t pass drug tests, and immigration enforcement is scaring some laborers away.
*Regulations add costs
Homebuilders are saying regulations (including environmental protection, infrastructure fees and rules that specify minimum lot sizes) add tens of thousands of dollars to the cost of every home. Regulations can potentially account for about 25% of the cost per home.
Land-use regulations have become more burdensome in the last 30 years, making it costlier to build. Freddie Mac found that while it only takes just 3.5 months to get a building permit in lenient New Orleans, it takes 17 months for a building permit in Honolulu. A longer permit process costs more money as developers have to carry the investments on their books while waiting for permission to build.
*Owners want to restrict supply
Local zoning and land-use regulations are not bestowed by a hidden hand. They’re enacted by our elected officials. When planning and zoning officials limit the number of houses that can be built in a neighborhood, or when they set minimum square footage for houses, they’re limiting the supply of homes and making them more expensive. But more importantly, they’re responding to the whims of constituents.
It’s your neighbors who want their property values to go up, and they are insistent upon some excess safety design standards or minimum lot sizes or other things. They either want their property values to go up or they don’t want “the wrong sort of people in their neighborhoods.” Since overt Redlining is illegal, this is the pressure behind a lot of the most damaging regulations out there.”
How can home buyers respond?
It will take time and concerted effort to fix this. Meantime, there are things home buyers can do:
- Be realistic about how long it will take to find and buy a home.
- Save plenty of money for a down payment and reserves.
- Improve your credit score to get a good mortgage deal.
- Get a Pre-Approval Letter now
- Be ready to make a competitive offer when your home comes on the market. This is probably not the time for real low ball offers.
That advice works for any real-estate market, whether it favors sellers or buyers. But these tips are especially appropriate when inventory is low.
Ready to buy now? Click this link and apply here now.
*This article does not represent legal interpretation or advice. This is not a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant.