For more than two years economists and industry experts focused on the housing market have decried a lack of available inventory as the main culprit slowing home sales.
But that’s about to change, as home builders are gearing up to soon bring more inventory online.
During the recent the 2017 Realtors Conference & Expo, Jessica Lautz, managing director of survey research and communications at the National Association of Realtors (NAR), and Robert Dietz, chief economist at the National Association of Home Builders (NAHB), laid out the various problems home builders have faced in boosting inventory levels.
Dietz said building lags overall demand for a variety of reasons, including an aging workforce that is causing a shortage of construction workers, low lot availability, steadily rising costs of building materials, the increasing cost of land and difficulties in obtaining construction loans.
“It’s more expensive to build homes and it’s having an effect on supply,’ Dietz said during his presentation, as per a report on NAR’s website. “Over the last five years, the total effect of building codes, land use, environmental laws and other rules have caused regulatory costs to rise 29 percent.”
However, there are some signs that this trend could soon be reversing and that builders will soon be ramping up production. Dietz pointed to the post-election surge in builder confidence and the pace of single-family housing starts slowly trending towards normalized levels as indications that inventory could soon get the boost it so badly needs.
“There’s also been the start of a shift to building smaller homes and townhomes,” he said. “I’m bullish on townhouses over the next few years. They are the perfect bridge from renting to homeownership for first-time buyers.”
Lautz, highlighting findings from NAR’s 2017 Profile of Home Buyers and Sellers, said supply constraints at the lower end of the market are a big part of the reason why first-time buyers made up only 34% of sales over the past year and have lagged the historical average of 39% for several years.
With low inventory pushing prices upward, successful buyers have needed higher household incomes and in the past year made smaller down payments. Additionally, the time a home was on the market before fell to a new survey low this year of three weeks.
“The month’s supply of homes continues to be way under a balanced market of six months, home prices have risen year-over-year for 67 straight months and multiple offers on listings for sale are a common occurrence,” Lautz said. “Without enough listings on the market, affordability is decreasing and buyers are increasingly saying finding the right home is their top struggle.”