Chic vs. Geek: What causes low inventory?

This week, we explain the variety of factors at play in a hot and competitive housing market.

CHIC (PEARL)

Low Interest Rates

Low interest rates are great for homebuyers, but they also make it easier for homeowners to keep their current homes and buy another, rather than selling. Over the last decade, an estimated 7 million properties have been taken off the market by homeowners and businesses investing in rentals. This is evident in the success of rental companies like Airbnb and VRBO.

Aging in Place

More and more Baby Boomers who bought low decades ago are choosing to stay in their homes and “age in place” – especially in the uncertain age of COVID. With prices soaring across California and the nation, where would they move?

Coming of Age

Meanwhile, the largest generation in history, Millennials, is about to hit the median age of a first-time homebuyer. That means an even greater strain on an already limited inventory and a fiercely competitive market into the foreseeable future.

GEEK (KEVIN)

We’re Not Building Enough

Ever since the housing bubble burst 12 years ago, homebuilders have slowed their pace and become more risk averse. According to Census data, an average of 1.5 million homes have been built each year in America since 1959. However, over the past decade, the pace has slowed to just 900,000 homes a year. Limited production, coupled with enticingly low interest rates and a generation of first-time homebuyers all combine to exacerbate the crisis.

Housing Policy

The CARES Act foreclosure moratorium has kept financially distressed homeowners from selling, but foreclosures were already at record lows before the pandemic. In fact, according to a recent report from CoreLogic, U.S. homeowners have seen their equity increase by $1 trillion since the third quarter of 2019, an increase of 10.8% year over year. So, even with 2.5 million homeowners in the mortgage forbearance program, we shouldn’t expect a wave of foreclosures when the moratorium is lifted.