Summer is coming to a close. School is back, and, most importantly, pumpkin spice has returned! With fall approaching the days are growing shorter and cooling, but home buyers continue to deal with a hot and expensive housing market.
This month I wanted to talk about one of the biggest factors contributing to high home prices: low inventory.
The New York Times recently published an informative article on the housing crunch nationally, highlighting the country’s continued lack of inventory and new housing to meet the ever-rising demand.
Back in June I touched on the economic factors that affect the housing market and discussed inventory shortfalls as part of a larger discussion. This month, following the NYT’s article, I thought I’d go into more details about inventory issues in real estate.
I always like to caveat any larger discussions about real estate by saying that markets vary greatly, especially when it comes to location. But housing inventory has been an issue throughout the country, and though the effects aren’t always the same, we’ve seen a consistent pattern across most areas and markets.
As the article points out, what once seemed a problem for niche areas like San Francisco has spread to every other part of America. In southern Maine and New Hampshire low inventory driving up home sale prices is becoming old news.
The NYT’s article helps break down some of the larger trends. Since 2010, the U.S. has on average started building 1.1 million new homes per year, failing to keep pace with the 1.6 needed due to population growth.
Year over year we’ve fallen more and more behind, exacerbating an already difficult market for homebuyers. Paired with a growing economy and low unemployment rates, the housing market has become highly competitive.
New construction homes, it should be noted, are not and cannot be the solution for today’s housing market. The time, costs and logistics for new construction could never keep up with the demand even in a normal market.
But new homes play a key role in tempering rising home costs. New homes on the market can help set realistic prices for the “old” new homes, or homes that were built five to fifteen years ago, as the article well demonstrates.
Without a good source of new construction, these homes continue to gain value at a rate higher than normal, which squeezes homebuyers. (This also hurts renters especially, who lose out on more affordable apartments when the market fails to create new construction offers).
Local, state and federal governments are hoping to bring aid and subsidies to middle-income families to help incentivize further investments in new construction, but such relief efforts will take years to bring about noticeable changes.
Still, none of this should read like a death sentence for home buyers, especially here in Maine and New Hampshire. I’m working with clients daily, helping them to find their next home.
Knowing the climate is key, however. Home buyers entering the real estate market need to approach the process with vigilance and patience. Being knowledgeable and prepared will give you realistic expectations, which in turn will lead to a successful home buying experience.
Add in having an experienced agent who’s available and ready for you, and you have the perfect ingredients for closing on your next home, no matter the market and climate…
Discussing the low inventory is important to me because I’m often asked about whether or not today’s increasing home values signal another housing bubble. Folks are concerned about the current market and see home prices rising similar to what we saw back in the 2000s before the market crashed.
But it’s important to recognize the cause of rising prices today. Prior to the housing bubble burst in 2008, demand for homes was driven by big banks looking for more and more mortgages. These mortgages grew riskier and the market was saturated with unqualified buyers with adjustable rate mortgages.
Eventually the riskier mortgages defaulted and the market collapsed.
Unlike back in 2008, today’s market is saturated with qualified buyers searching in a market without enough homes.
So I don’t see a housing bubble. Is this good news or bad news?
Well, I guess that depends on your real estate goals and plans. Those looking to sell can expect prices to remain strong for the foreseeable future. Relief for home buyers is going to take some time.
Still, avoiding housing bubbles is better for everyone, as the decade following the economic crisis of 2008 demonstrated very well.
Real estate, like most commodities, is an almost living, breathing thing. Constant monitoring of trends and changes in the market is essential.
If you have any questions about the housing market, or want to know your home’s worth, or if you want to talk more about real estate, reach out and say hello.
