Low housing inventory. What changes it?
Low housing inventory. What changes it? The simple answer is to add more houses to the inventory, but the real answer might be more complicated. The housing market is cyclical. The market shifts from a seller’s market to a buyer’s market and once in a while a market will be in balance, but that is rare.
Low housing inventory. What changes it? – Seller’s Market
When more buyers are in the market than sellers, the housing market is a seller’s market. Seller’s have more opportunity to generate higher sales prices. Good to great homes that hit the market are quickly gobbled up and they often receive multiple offers. Many times, those offers can exceed the list price.
Buyers will forgo some contingencies to improve their chances of obtaining the property. It may be as simple as not doing a home inspection or not asking for closing cost help. The cleaner the contract, the more likely a buyer will gain an advantage over other would-be buyers. Of course, cash is often king, but not always. Shortening the time of closing is another way frantic buyers may win a multi-bid real estate purchase.
Low housing inventory. What changes it? – Buyer’s Market
Supply and demand influence both seller’s markets and buyer’s markets. When there are more sellers than buyers, buyers have an advantage. In this case, buyers may be able to get a discount on a property. They may be able to ask for closing cost help, and home inspection repairs. During a previous buyer’s market, I asked for the seller’s motorcycle, which he agreed to give me if I bought his house. That’s just how crazy it can get in a buyer’s market.
Some home inspection repairs may be expensive, but in a buyer’s market, they may be the only way to make things happen. In a sale I did a few years ago, my Seller offered $20,000 for a roof replacement. We were in the throes of the recession and buyers for high-end properties were few and far between. The only way to close the deal, was to offer that repair. It was a buyer’s market and buyers could ask for just about anything and get it.
Low housing inventory. What changes it? – The Circular Dilemma
Low housing inventory creates a circular dilemma. Sellers who want to sell may stay put because there is no place for them to move to. Buyers can’t buy houses that are not on the market, and sellers can’t sell if there is nowhere for them to go. It’s a vicious circle.
The Winchester-Frederick County, VA housing inventory has reached a historic low at 270 presently built homes. As I’ve talked to other colleagues, they have stated that their work load has slowed because there are no houses for their buyers to buy. With a market that thrives in the 500-600 available homes range, 270 is incredibly low. So, what changes low inventory.
Low housing inventory. What changes it? – What Changes Low Inventory
- Lower interest rates. When interest rates are low, people can afford to buy, but as interest rates rise, some buyers are priced out of the market. In a convoluted way, the Federal Reserve controls interest rates, and as long as there is low inflation and low employment, the rates will stay low. But, the rates can’t stay low forever. Low interest rates help home-buyers, but they hurt bond holders and pension funds. Sooner or later, the rates will have to move up, but the FED has held the line on increases, though there are rumblings of rate hikes.
- Consumer confidence is another step out of low inventory. When consumers are confident in the economy, they are more likely to buy or sell a home. Consumer confidence is now at a 17 year high. That bodes well for the real estate market. The seasonally low inventory may be bolstered in the new year by the growing consumer confidence. When consumers are feeling good about the economy, they spend money. The recent GOP tax cuts may fuel that even further in 2018, and that could lead to a housing boom.
- Low unemployment. The current unemployment numbers stand at 4.1%. That is the lowest unemployment rate in the United States since February 2001. The workforce is growing, and that fuels consumer confidence, the tax base and that puts more cash in the economy. As more people go back to work, their ability to buy a home increases.
- Increase in new construction. Buyers can’t wait forever to buy a home, and neither can sellers, but with new home construction at a new high, homes coming on the market may give sellers confidence to get out there and look for new home so they can place their current home on the market. New home construction took an unexpected jump in November. Sadly, housing starts tend to lag demand. That is now contributing to the housing shortage, but it is not a long-term issue. When construction begins to catch up with demand, the market may shift to the buyer’s favor.
The solution for low inventory is more complicated than simply adding more houses to the market. It’s a nationwide issue that takes time to reconcile, but with a little patience, it will correct itself, and in the coming year, the real estate market may hit a new boom. As long as the economy can sustain its current trajectory, 2018 may be the best year for real estate since 2007.
When you’re ready to list your home, or you’re ready to buy a new home, give the Cornerstone Business Group, Inc., a call. We are your local real estate sales pros, and we’ll put economic and construction experience to work for you to make your experience a dream come true.