The question many homeowners face this year is, “Why is it so hard to find a house?” We are at the best end vendor market, which means real estate is very competitive for buyers now. La National Association of Agents of Actors (NAR) notes that households receive on average 4.8 offers per sale, and that number continues to grow. Why? It’s because there are so few houses for sale.
Low inventory in the housing market is not new, but more difficult to navigate. Danielle Hale, Chief Economist at realtor.com, explains:
“The housing market is still relatively scarce, and buyers cannot buy what is not sold. In terms of what we saw in 2017 to 2019, March 2021 was still about 117,000 new listings lower, adding to the pre-existing early annual gap of more than 200,000 recent listings that would normally come to market in January or February.. Despite this week’s gain from a year ago, we are 19 percent below the new vendor performance we saw in the same week in 2019.”
While many homeowners have paused their plans to sell during the pandemic’s rise, this is not the main cause of today’s huge gap between supply and demand. Sam Khater, Vice President and Chief Economist at Freddie Mac, Economic Housing and Research Division, shares:
“The main driver of the housing shortage was the long-term decline in the construction of single-family homes. . . . This decline has resulted in the decrease in supply of entry-level single-family homes or ‘initial homes’. ‘”
When you consider the number of homes built in the United States of the decade, the serious lack of new construction is clear (See graph below):The number of newly built homes is disproportionately lower than the rate of home formation, which, according to the American Census Bureau, continued to increase. Khater too explains:
“Even before the pandemic and current recession of COVID-19, the housing market faced a large supply and that deficit grew. In 2018, we estimated that there is a lack of housing supply of about 2.5 million units, which means that the U.S. economy was about 2.5 million units below the need to match long-term demand. Using the same methodology, we estimate that the housing shortage increased to 3.8 million units by the end of 2020. A sustained increase in housing shortage is extremely unusual; usually in a recession, housing demand decreases and supply rises, causing inventory to rise above the long-term trend. “
To meet the current requirement, Freddie Mac estimates that we need to build nearly four million homes. The good news is that builders are struggling to get us there. La American Census Bureau also states:
“Privately owned homes licensed under construction permits in March were at a seasonally adjusted annual rate of 1,766,000. This is 2.7 percentage (± 1.7 percent) above the revised February exchange rate of 1,720,000 . . . Private ownership housing began in March at a seasonal annual rate of 1,739,000. This is 19.4 percent (± 13.7 percent) above the revised February estimate of 1,457,000. . . . “
What does this mean? Lawrence Yun, Chief Economist at NAR, explains:
“The March figure of 1.74 million homes is the highest in 14 years. Both single-family units and multi-family units crawled up. After 13 straight years of underproduction – the main cause of today’s inventory shortage – this construction boom must last at least three years to compensate for the partial deficiency. While exchange buyers buy newly built homes, theirs previous homes will appear in MLS, and so more choices for consumers. Housing starts until completion could be 4 to 8 months, so be patient about improving inventory. Meanwhile, builders deserve joys.”
If you plan to buy this year, the key to success will be patience, considering today’s low inventory environment. Let’s connect today to talk more about what’s happening in our region.
Content previously posted in Keep Current Things