If you have been searching for a home recently, you will observe that there is a shortage of homes for sale. Demand for homes remains high, and with limited inventory, there has been pressure pushing prices upwards. COVID-19 does factor into lower housing inventory since some sellers have pulled their homes off the market or decided not to list them at all, preferring not to have potential buyers touring their homes. Uncertainty during these challenging times have also caused some people to hunker down and decline to buy or sell. Nevertheless, the need for housing and the need to change housing continues to remain strong. COVID-19 is only one of the reasons why housing inventory remains low.
Pent up demand and low interest rates
After the onset of the pandemic when home showings were prohibited, during spring and what normally would be the busiest homebuying months of the year, homebuyers were on lockdown. As soon as showings were allowed again, homebuyers jumped back into the housing market en masse and pent up demand exploded in July. When homebuyers entered the market, their purchasing power was supercharged by historically low interest rates. I was a Realtor® selling homes in the 1980s when interest rates hit historic highs at 16%. After the 2007 to 2012 recession, on the other hand, homebuyers were armed with what at that time were record low interest rates. Now, in a COVID-19 environment, rates are the lowest they have ever been in my entire 42-year career. Increasing the purchasing power of homebuyers causes homes to be rapidly absorbed by the market, another factor causing low inventory.
The primary reason the housing shortage still exists across most of the country is the population continues to increase faster than the homebuilding industry has been able to build homes. In order to keep pace with population growth, the new home industry needs to build about 1.5 million homes a year. There has not been one year since the start of the recession in 2007 to 2012 and then into 2019 that there has been enough new construction. At the end of 2019 and the start of 2020, the pace reached the necessary level, however, when the pandemic hit, home construction stalled again. It will likely be a few more years before the new homebuilding industry will be able to catch up with the shortfall created since 2007.
Not to be confused with homebuyers from Australia, so-called “Boomerang Buyers” are individuals who possibly lost their homes to short sales or foreclosures but are now back in the market to buy again. As time passes, they have been able to recover financially and obtain a loan again. Boomerang Buyers started off in the market in about 2015 as those who lost homes early in the recession and have been able to repair their credit. According to Realty Trac, nationally 7.3 million Boomerang Buyers a year are returning to the housing market. This trend should continue through 2022.
Since inventory is so low, the biggest fear of many prospective sellers is being able to find a replacement property. With that thought in mind, they develop a “stay put” attitude and would rather not put their home on the market.
Homeownership duration getting longer
According to the National Association of Realtors® (NAR), in previous years, the median duration homeowners spent in their homes was six years. Today it is around nine or 10 years. As more people “stay put” in their homes to the tune of nine years instead of six, the result is less turnover and less inventory.
Homeowners are living longer and staying in their homes
Fifteen or twenty years ago, as seniors reached their late seventies or eighties, the next move might have been transitioning to assisted living or other types of senior communities. Today, older generations are staying in their homes as long as they can. They do this by taking advantage of the variety of services aimed at seniors that have emerged, such as landscaping, housing cleaning, home companions, transportation options, grocery delivery, and more. All of this enables them to stay in their homes longer and in turn, keep more properties off the market.
Remember, whether you are a homebuyer or seller, all real estate is local. This means your local Realtor® can provide you will the statistics and knowledge to help you make informed real estate decisions.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor
for Life. For questions, e-mail [email protected], call 303.441.5611 or visit boulderco.com.