By Erik J. Martin
CTW Features
The law of supply and demand dictates that, when the former is low and the latter is high, prices rise, along with disappointment on the demand side. In real estate, this scenario is referred to as a “seller’s market,” resulting in owners with homes for sale often getting top dollar, which is what many areas of the country are currently experiencing. And a big reason for this continues to be low housing inventory.
In fact, according to a National Association of Realtors report issued in late August, total unsold housing inventory across the nation is at a 4.7-month supply – thanks to 2.13 million existing homes for sale – marking the 14 consecutive months of annual inventory declines. Many experts believe six months’ supply of unsold housing is needed for a healthy real estate market.
Richard Murdocco, Long Island, New York, a real estate expert and weekly newspaper columnist, says the housing shortage persists for several reasons.
“The constrained housing market shows that people are holding on to their property in an effort to get maximum value out of their real estate equity,” Murdocco says. “Also, there simply isn’t much quality land to build additional units on, especially in older areas like the Northeastern United States. Since many property owners aren’t selling their homes, there is limited supply, while historically low mortgage rates are driving demand.”
Also contributing to homeowners’ resistance to putting their residences on the market is apprehension about timing.
“Sellers are concerned that they will list their home and it will sell so quickly that they will not have identified the right home to buy,” says Michael Schaffer, broker associate with Denver-headquartered LIV Sotheby’s International Realty.
Adam Hergenrother, CEO of Hergenrother Enterprises in Colchester, Vermont, says current low supply is also due to the fact that, since the last recession, many skilled laborers left the construction industry to work in the oil and gas industries.
“With the number of skilled laborers down, home builders could not execute new construction projects at the same pace they had previously. In addition, household formation has been below historic levels in the past few years – at only 500,000 to 700,000 new households versus historical averages of one million. This means there is pent-up demand,” Hergenrother says.
Continued low supply means potential windfalls for many sellers, frustration and consternation for lots of buyers, and indecisiveness or procrastination for homeowners who are on the fence about selling yet enjoying the fact that home values are going up.
Fred Glick, vice president of real estate and economics for Onerent, Inc., in the San Francisco Bay area, doesn’t expect the supply shortage to improve anytime soon.
“More jobs and further economic growth may turn some renters and buyers, but inventory issues will remain for quite a while if the economy holds up,” says Glick, who cautions buyers not to overpay beyond their means or get into bidding wars they cannot afford.
Schaffer, meanwhile, believes construction needs to increase, which can be difficult in areas with restrictive zoning laws and curbs on residential infill development in many communities.
“In many markets, the solution to the shortage rests primarily with home builders ramping up their output to increase the overall housing stock,” Schaffer says.
Murdocco also fears that the dearth of inventory will continue for the foreseeable future.
“Both buyers and sellers can expect similar housing market conditions up to the presidential election. Afterward, borrowing rates may become volatile, which may change the lending market for buyers,” Murdocco says. “As for homeowners who aren’t buying or selling, their homes will likely continue to appreciate in value as long as the economy is running well – but they shouldn’t assume values will surpass those found right before the market crashed in 2008.”
© CTW Features