In a statement released by the National Association of Realtors, Chief Economist Lawrence Yun says that “a major housing shortage exists in this country.”
Although housing inventory in the U.S. has been on a steady decline for the past five years, it reached a new low this spring.
Especially when it comes to starter and trade-up homes, the industry has seen an increasingly large drop in inventory. According to Housing Wire, the number of starter-homes has fallen 8.7% since 2012. Just over the span of this past year, the share of starter homes in the market has fallen from 26.9% to 25.9%. While the inventory of premium properties is similarly experiencing a decline, it is much less drastic than that of starter-homes. Since 2012, the inventory of premium homes only fell 1.7% and, according to Housing Wire, the market share of premium homes has actually seen a growth of 2% in 2017. Despite this slight growth with respect to premium homes, the housing shortage continues to plague the real estate industry.
Some industry experts attribute recent years’ home value recovery to the inventory gridlock. According to Trulia, “housing markets that have seen greater home value recovery since 2012 have experienced larger decreases in inventory.” Many potential sellers in “hot” markets have been unenthused by the prospect of selling their starter-homes and trading up, which has negatively impacted the already inventory-constrained industry.
Additionally, low levels of construction activity have had a significant impact on the scarcity of housing inventory for affordable properties. According to Curbed, unemployment in the US construction industry is the lowest it has been in the past decade; there are nearly 200,000 construction industry jobs currently unfilled across the country. National Association of Home Builders’ Chief Economist Rob Dietz explains that since the recession, the labor shortage has not only grown, but accelerated. Dietz claims that the labor shortage is “the top challenge in the building industry right now” (CNBC).
So what does this mean for consumers looking to buy their first properties? That their searches for starter-homes are likely to be challenging, as affordable properties are becoming more and more scarce.
Due to the demand that largely overshadows the supply of affordable properties, the homebuying process has become incredibly competitive. According to Realtor Mag, “home prices have risen by 41% and rents have climbed 17% over the past five years.” As the prices of non-premium properties continue to rise across the U.S., millennials along with other homebuyers looking to invest in starter and trade-up homes are in a difficult position. According to CNBC, this shift to “such a hot market..makes it even harder for first-time, mortgage-dependent buyers to succeed.”
Affordability is becoming an insurmountable obstacle for many first-time home buyers, many of whom are millennials. The millennial homebuyer is different than older generations of consumers, as they have unique hesitations when it comes to making long-term investments. One such hesitation that these homebuyers have is that of debt. Millennials have higher student debt than any other generation of homebuyers, which hinders them from being able to save for a down payment on their first homes.
While the homebuyer’s struggle to find reasonably priced property will continue until the inventory gridlock dissipates, industry experts are hopeful that the number of affordable homes on the market will increase in the near future. According to Realtor Mag, the National Association of Home Builders claims that despite the “nationwide drop..overall housing production for single-family homes in the first quarter of this year is still 8.1% above the pace in 2016.”