Housing supply is insanely low right now. It’s getting ridiculous. Why is it so low? Let’s make a list. Please add your take in the comments.
SOME REASONS WHY HOUSING SUPPLY IS LOW
1) Not listing during the pandemic: Sellers aren’t listing as often during the pandemic. This has been common in many markets across the country, and in Sacramento in particular where monthly inventory is down about 50% right now compared to last year.
2) More demand: Mortgage rates below 3% have caused buyers to jump off the fence and basically gut the market. Thus increased demand has depleted listing inventory (which was already low).
3) Lack of new construction: We’ve had population growth in the midst of anemic new construction since the housing bubble burst. In other words, we haven’t built enough units and we’re really beginning to feel the sting of it. Check out this visual from FRED to show housing starts today compared with 2005.
4) Shift in demographics: People are staying in their homes longer and therefore not selling as often. Last year Redfin published research stating owners are staying in their homes an average of thirteen years instead of eight years, which means there aren’t as many homes being listed for sale.
5) Increased migration: Some markets are seeing more buyers from outside the area flocking to the neighborhood. Lots of Californians of course are leaving the state and heading to Idaho, Nevada, Texas, and all the usual suspects, but who is coming to the market? There isn’t one definitive easy source to track migration unfortunately, but Bay Area buyers have seemed to have an increased focus on the region. In fact, LinkedIn recently published stats showing a 7.6% increase in net arrivals in Sacramento.
6) Nowhere to go: Some owners would list but they feel there’s nowhere to go because homes are too expensive or inventory is too thin.
7) Shift in home size: We’ve been building larger homes for decades now, which could eliminate the need for some folks to buy something else because they are satisfied and able to stay put. During the pandemic of course we’ve seen buyers target larger homes.
8) Other: Blackstone and investment funds purchase thousands of homes that have not resold on the open market. I wouldn’t say this is the reason inventory is thin, but it’s worth mentioning. We’ve also had wildfires in portions of California where homes have not been rebuilt.
9) Not a distressed market: We used to have more listings because of all the distressed sales, but we just don’t have that sort of market any longer. Bank-owned sales (REO) represent about 1% of all sales in Sacramento County as well as the region, and short sales are even rarer.
10) What else? Did I miss something? Please comment below.
I hope that was interesting or helpful. Thanks for being here.
Questions: What point stands out to you the most? Why is inventory so low right now? I’d love to hear your take.
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In my market, low interest rates and increasing rents and sales prices have been the impetus to buy. There has been a rush to buy before prices go even higher here for years. Another reason is that rents are often higher than mortgage payments. Rents are increasing and mortgage payments are declining thanks to low rates.
Thanks Mark. Rent growth has been obscene over the past decade. Rents in my market have still been increasing, but the rate of growth has slowed.
Great explanation, Ryan. I heard that some buyers used the stimulus money for downpayment. I am not sure if this is true or not.
Thanks Jana. I imagine some buyers did. I wish we had research on that.
Hi Ryan-
I know of a couple of young families that would love to move up in size, but the thought of trying to keep the home clean and show ready while the kids are learning virtually is just too much to deal with while also trying to work from home… they are making due for now….
Thanks Susan. Interesting to hear. Showing homes today is no joke in light of Covid. I can’t imagine the extra layers required while the kids are home. Your story underscores the reality of a lack of confidence among some sellers to list their homes right now. Some of refusing to list could be due to not having a vaccine of course, but there are also practical reasons as you mentioned.
Excellent blog. As you say there is no ONE THING, but I will say COVID making sellers reluctant to list, Migration from the Bay Area and crazy low interest rates are the big three pushing this listing crisis. I saw some research that stated the sellers holding back because of COVID will basically come back to the market once its no longer an issues, but the long term solution is building and i think the builders are somewhat bullish on the Sacramento market.
Well said Jon. Thank you. We definitely have short-term and long-term issues to consider. We’re going to have to see what time and a vaccine will do for the market. I think overall sellers will need to start feeling more comfortable and confident about having people walk through their homes.
Great article Ryan, with the usual illustrative charts and graphs. I believe #6 may be underrated. I would not sell now to buy elsewhere because my property taxes would skyrocket!
Thank you Dan. Yeah, I wish there was a way to know for sure how many owners fit into this category.
Great information Ryan. I love the new home starts, something that I don’t usually see in your analysis.
Thanks Gary. Every once in a while I try to put something new in there. š
Rumor has it that those my age and older who want to downsize and move aren’t doing it right now, unless they are politically motivated and want out of California at any cost. I have seen an avg DOM of most market areas under 10 days, except in the over 55 age communities with DOM over 75 to 95 days. So that might be one more item to consider. So I guess from your blogging that you are feeling better. Sure hope so, my friend, you got all of us out here concerned. Now start behaving and no more hospital visits.
Thanks Brad. Let’s keep watching that rumor. I’m anxious to see migration stats for 2019 and 2020. Most of the stats published have only been through 2018, so it should be telling as to just how many are leaving the state. One thing to consider about the 55+ community too is this demographic may be more at risk for Covid, so that could play into the stats as well in terms of how many listings come to the market.
I’m doing much better. It’ll take a couple months to feel perfectly normal, but I’m really doing great right now. In fact, last night I lifted weights in the garage with my two teenage sons.
Great information as always. I just had this conversation with my Son in law when he was in town ( He will love your charts and graphs.) I forgot about Blackstone I think it has a small impact along.
I have lost buyers and sellers for many of these reason. One seller does not want to sell till there is a vaccine,another is a move up buyer nothing for them , Buyer moving here from out of area can’t find a home with such low inventory they have decided to try another state since our prices have gotten so high they no longer make sense they are retiring from another market but came here for the prices. A couple for Sun City Roseville decided to wait why to move to the community and pay HOA fees for a social life style with no benifits at this time due to COVID.
We are are feeling it thank your for the great Blog I am glad you are better. Take care
Thank you Sandra. I appreciate the stories. It’s wild to me that someone would look out of state because of low inventory. I get it, but it just shows that some people have flexibility to make a move like that.
A mixture…. three of my sellers, were also going to become move up buyers, but due to the pandemic, they have either lost their jobs, been put on reduced hours, or had any job movement stalled as a result…
Thanks Patricia. I appreciate it. The economy / job market can certainly be a factor. There is still so much uncertainty with the economy these days. Let’s keep watching.
I have 3 listings coming up in the next couple of months and all involve folks retiring( sometimes early) and moving out of state. Timing, as well as sorting through 20+ years of “family stuff”, takes a minute!
Thanks Karen. For sure. Good luck on the listings. š
This is a great article! I am from Hawaii so I’ve been focusing on trends in our market and they are following the trends you present here exactly. Our biggest problem is lack of inventory and I think that problem is simply going to worsen as this pandemic continues.
Great to hear. Thank you Louisa. Please keep me posted with anything you’re seeing too. I’m always fascinated to hear what’s happening in other markets.
There are also a lot of folks who may have lost houses in 2007-2009, that now are out of bankruptcy/ fixed credit that now qualify to buy again..
Very true. Lots of buyers are looking. I think the past has influenced the psyche of buyers today too in terms of being more picky about making a reasonable decision. Lots of people felt burned in the last market cycle.
I’m seeing an increase in land sales. People wanting acreage to build there own refuge!
Thanks Elizabeth. I’m so glad you said that. I actually have three land appraisals on my desk right now. I haven’t looked into regional land numbers recently, but I may do that as I’ve had lots of land conversations this year. Thanks for the idea. š
Great post, Ryan. I think the thing that stands out to me the most is the lack of new construction. The chart you include really shows how much new construction has declined over the years. All of your other points also make perfect sense. It seems to be a perfect storm of events that have resulted in where we are today.
Thanks Tom. It’s incredible to see how far behind we are. Len Kiefer of Freddie Mac has an incredible visual to show this too. While we’ve seen an uptick lately in new construction, we’re still way down. Hope you are well.
Great data, graphs and insight as always, Ryan. I believe while information pertains to your regional NorCal market area, that these market dynamics are playing out similarly in SoCal and our other west coast markets. And glad your back in the saddle! Me being a semi-weekly commuter up/down the west coast, I’ve been fortunate so far…
Thank you so much Brent. I appreciate that. This is exactly why I pay attention to dynamics in other markets too. Even though our markets may be different, we can certainly be experiencing a similar trend. The market is hyper-local of course, but there is no mistaking some trends are hitting in many places across the country. Hmm, a commuter up and down the West Coast? Interesting.