Why Is Inventory So Bad?

Last week and blog reader asked why the inventory level is so bad. He mentioned that it’s been bad since 2012 and seems to be getting worse and wondered what the explanation could be. I used to do large charts here showing active, pending as well as houses that had experienced price reductions. Can you imagine that? Price reductions? I have a few reasons why I think this inventory issue is happening…and those really don’t make me think it’s going to improve a bunch either. At least in the short term.

1) Lack of Move Up Sellers

Way back when, you could list your house for sale, sell it and find a bigger house that fit your needs during the escrow of your first place. Right now you might be looking for months and not be able to find a replacement house. I wrote last month about a couple who sold their place a year ago and are still looking for the next home. I have some clients that I sold a 2 bedroom, 1 bath house to in San Carlos about 4 years ago for $650,000. Since then they have 2 little kids…it’s time for them to move up. Their house is worth at least a million right now. If they move up they very well might not find a replacement house in the 90 days they might get with their sale…and if they do it’s probably going to cost at least $1,300,000. Probably more. They don’t really want that monthly payment nor do they want that property tax burden. They’re sort of stuck right now as a result. Consequently, folks that are intimidated by the idea of not being able to find a replacement home, by the high cost they will incur are doing the next logical thing…they’re adding on to their smaller houses and staying. That’s an option…as long as you have a house! It’s not so great if you have 2 or 3 kids and you live in a starter condo! then it’s really problematic.

2) Inadequate New Housing

I don’t think this is much of a secret…there’s nothing new to buy around here. OK, there’s some condo projects here and there…but there really isn’t much. This isn’t Sacramento where there are large tracks of new and affordable single family houses. For all the spectacular demand around here there isn’t the kind of new construction that’s even kind of keeping pace with demand. If there was it would certainly reduce the burden placed upon the market by question #1.

3) Tons of Buyers

Making it all more dramatic is the sheer number of buyers out there. There’s simply WAY more buyers than available homes. Even if inventory quintupled there would still be more buyers than homes. The high price of rentals only helps people want to buy too. It’s a vicious cycle.

Outside of another financial catastrophe I can’t see how this stops. Maybe a steep rise in interest rates will slow it down…for awhile? As of right now, that doesn’t really help much huh? You can buy a house tomorrow after interest rates go up for less than you can today…and pay MORE per month since your rates are higher. Oh, boy.

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