LOW INVENTORY ALERT!
Low inventory! What does that even mean?
For home buyers looking to purchase a new home in 2020, you maybe facing an extremely low inventory. Starting 2020 with a strong economy and low interest rates, home buyers still face a big hurdle — extremely low inventory, This according to a recent report by Realtor.com.
They found that “5.9 million single family homes were built from 2012-2019, which wasn’t enough to offset 9.8 million new households formed during that time. Its economists estimate even if construction moves fast, it would take four to five years to get back on track.”
“Simply put, new home starts are not keeping pace with demand,” said Realtor.com Director of Economic Research Javier Vivas. “The current inventory crisis and the need for 3.8 million new homes means a nearly insatiable appetite from potential buyers, especially in the lower end of the market.”
The inventory shortage can be traced back to the housing crash more than a decade ago. Loans were made available to the riskiest buyers. Builders put up 1.7 million single-family homes at the peak of the construction boom in 2005, according to the U.S. Census. After the 2008 financial crisis, home construction plummeted. Home builders focused on higher end homes with bigger margins, Realtor.com said in a release, making entry-level and mid-range homes the main inventory gap.
“It’s easy to understand why builders have been cautious in an effort to avoid overbuilding, but we believe that demand for new homes will remain strong, and homebuilders could represent a bright spot for housing in the decade ahead,” Vivas said.
Baby boomers are also deciding to hold onto their homes more than previous generations did at their age. Primarily because many millennials moved back home with their parents unable to rent or buy their own space during the recession. The median home equity held by Gen Xers declined 43 percent from 2007 to 2010, from $66,000 to $37,600. Generation X was just launching their life when it all came tumbling down. Although financial recovery, has mostly been achieved, it did rob Gen-X’ers from starting retirement earlier and getting that promotion they were next in line for. So of course they are much more cautious about buying, selling and leveraging homes or any other financial purchases. All people are making home purchases much differently than in years prior.
However, solving the home supply puzzle is more than just a game of volume, and timing can be tricky. On average, consumers need about two to three years of solid income and stability to save for a down payment. With today’s strong economy and low likelihood of a downturn in the next few months, now may be the right time for builders to make a move, according to the report’s findings.
But all isn’t negative! Now for The good news! Millennials are starting to enter the marketplace and are considering their first home purchase. Millennials are a very cautious and more educated generation because of evolving technology and immediate access to information. They are leveraging that to shop rates, research what to do and what not to do. Having Millennials enter into the housing market is a good thing. This means “Large populations of renters and well-qualified potential buyers with strong incomes are waiting in the wings,” Vivas said. “Assuming the economy avoids a full-on recession and rates remain low, the window for builders remains wide open. If builders can deliver homes at adequate price points, home buying will strengthen through the first half of the decade.”
Bottom line, entry level homes are hard to come by in low inventory markets, and it may be here to stay for a while. The good news for Sellers is that means you control the market and this increases your bottom line most of the time. The bad news is it pushes home prices higher which make it unaffordable for entry level buyers. It is a delicate give and take market.
If you have questions about the real estate market or just want some more information, give me a call.
Follow Me on Facebook: Valerie M. Brown | Realtor
Follow me on Twitter: @VeeSellsVegas