Even though the U.S. has seen more than three years of a booming seller’s market for housing, there are plenty of Americans who are reluctant to sell their homes for a very simple reason: Where are they going to live?
The supply of U.S. homes for sale, known as inventory, has dropped to some of the lowest levels since before the Great Recession. In June, the National Association of Realtors said that inventory dropped nearly 1% from May to about 2.14 million homes, a supply of about 4.6 months, compared with a typical supply of 6 months in a healthy market. (That means that it would take just 4.6 months at the current sales rate to deplete the entire inventory of homes for sale in the U.S.)
Not only does the low housing inventory mean a bidding war for buyers, but sellers who may want to move to a smaller home and stay in the same market are quite often stuck — because of the rise in prices for smaller homes that are being fought over by both first-time buyers and downsizing empty-nesters.
“A key part of the inventory problem is that in expensive markets it’s difficult for existing homeowners to find another home afterwards if they do sell,” said Ralph McLaughlin, an economist with San Francisco-based Trulia.com, a real-estate research firm. “It’s a double-edged sword.”
Nationally, the number of starter homes (median price of $154,156) in the first quarter of 2016 in the U.S. has dropped by more than 43% since the same period in 2012, and the price buyers will have to pay for those homes has risen 5.6% since 2012, Trulia said in a May report. So-called “trade-up” homes, with a median list price of $267,845, have fallen by 41% since 2012, Trulia said.
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Overall, inventory numbers are down nearly 6% from a year ago, the NAR said in an Aug. 2 blog posting. The tight inventory numbers are also helping push up housing prices, with U.S. median homes prices rising to $247,700 in June, up 4.8% from a year ago, the NAR said.
“I am seeing people that literally will never be able to move,” said Joe Winpisinger, a Re/Max Realtor in Cape Coral, Fla. “The homes they are downsizing to have gone up exponentially more than the homes they have to sell,” he said.
Not surprisingly, some of the lowest inventory is in the San Francisco Bay Area, where single-family homes are scarce and multiple bidding for homes on the market is the norm. For example, the South Bay city of San Jose has just a 1.6 month supply of homes, meaning that given the buying frenzy in Silicon Valley, the city would exhaust its inventory of homes on the market in just over 45 days with every home sold, says Trulia’s McLaughlin. Oakland and San Francisco have similarly thin stocks, with 1.7 months worth, according to Trulia’s analysis of the largest 100 real-estate markets in the U.S.
A normal supply of homes is typically six months, says McLaughlin. And it isn’t just the red-hot market of the Bay area with low inventory. Seattle has just a 1.8 month supply, less than 60 days. Other hot markets include Columbus, Ohio, and Washington, D.C., which has just a 2.5 month supply of homes.
John Lazenby, a Realtor with Colony Realty Group in Orlando, Fla., said in vacation spots near attractions like the Disney World resort,
inventory is particularly short because of investors and vacation home buyers who’d rather have a home instead of a hotel when they visit. Orlando’s supply of homes under $200,000 in June would last just 1.6 months, according to the Orlando Regional Realtor Association.
“I am seeing people that literally will never be able to move. The homes they are downsizing to have gone up exponentially more than the homes they have to sell.”
“There’s a general reluctance among existing, non-relocating owners to sell despite such healthy increases in value, because of the known difficulty in securing a replacement home in Orlando,” Lazenby said.
Lazenby also said that some ”empty-nesters” are reluctant to sell because they’d rather stay where they are to be able to have their children and grandchildren visit, and have somewhere to stay if they need long-term care. “They’re saying they want the larger house for when the kids come, or when I need them to come,” he said.
To that end, many aging parents are taking advantage of their equity and near-record low interest rates to invest in their homes, adding elevators, stair chairs, adjustable countertops and other elements that allow older residents to age in place, said Andrew Carle, a professor who focuses on aging issues at George Mason University’s College of Health and Human Services in Fairfax, Va.
“What we’ve seen is that when they do sell, they are up-sizing, not downsizing,” Carle said. Indeed, Americans will spend a record $350 billion on home improvements in 2016, according to the American Institute of Architects.
Carle also noted that many elderly homeowners also fear what might happen if they do sell and there’s another real estate crash. “There’s some nervousness about making a move,” he said. “They’re thinking ‘we’ve got a roof over our head’ so why sell’” and risk losing money.
When it comes to alleviating the inventory shortage, Winpisinger is actually encouraging his clients to sell, but build a new home instead of buying an existing one and pocket the savings. A new 2,000-square-foot home could be built for as little as $177,000 , according to HomeAdvisor.com well below the aforementioned median sales price of a existing home of $247,700, and has the advantage of being a brand new home. “Existing homes are way overpriced compared to what you can build new for,” said Winpisinger.