March 1, 2016 – The median price of existing homes is rising, but the increases don’t seem to motivate many sellers or new-home builders – and that lack of motivation contributes to a growing dearth of inventory in many markets.
The Fiscal Times recently looked at the main reasons behind the lack of inventory.
1. Builders aren’t building new homes
Builders say that the cost and availability of labor is a huge factor for the drop in housing starts this year. A recent Commerce Department report showed that housing starts fell 3.8 percent in January month-over-month. “The disappointing construction numbers reflect the loss of small builders and a shortage of construction labor,” says Yun. “Small construction companies have traditionally been the backbone of new-home building, but the difficult financing environment created by local banks since the downturn has thinned their ranks.”
2. A slowdown in the distressed market
Distressed sales are down from 11 percent compared to a year ago and at the lowest level since November 2007, NAR reports.
3. People are staying put
Why aren’t people interested in selling when home prices keep rising? There are a few reasons why they’re not budging. More than two-thirds of baby boomer owners, for example, choose to make renovations to their home so they can age in place rather than move. There’s also a decrease in people moving to a new area for a job.
Also, many owners are simply stuck in their homes due to equity issues. According to CoreLogic, around 8.1 percent of homes are still worth less than their mortgage.
Finally, a lack of inventory can add to the lack of inventory: Many owners won’t try to sell their own home and move up if the roster of available homes is tight. They’re generally willing and ready to sell, but they’re waiting until the selection of homes grows.
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