It seems as if I am asked this question at least once a day.
In the past, this might be a discouraged lament of an impatient client who could not find a house that they wanted to buy. But lately, it’s a legitimate question that nearly everyone is asking, so I’m going to explain some of the dynamics at work that have resulted in this frustrating market.
There are three main issues at the root:
1. Sellers want to hang on to their low interest rate. Among current homeowners, 60-70% have mortgage rates below 4%. Those folks are not so keen on putting their home on the market, as they understand that once they themselves are buyers, they will be faced with a much higher interest rate than what they are now paying. This has created an incentive for people who might have otherwise been interested in moving to stay put for a while.
2. The number of first time homebuyers is at an all time high. There’s a demographic in the real estate world called Peak Household Formation Age. These are people who are roughly 27-37 years old and ready to buy their first house. And right now, there are a lot of those people. People in this demographic are competing with each other for a limited number of houses, as is anyone who is considering downsizing or upsizing. The sheer number of people all trying to access the same low inventory makes it a more competitive market. Also, since sellers turn into buyers as soon as their house is sold, this competitive buyer’s market again incentivizes many homeowners to put off moving for a while.
3. We didn’t build enough in the last few years. The burgeoning 27-37 demographic was not one that sprung up overnight. We’ve known for a while that there would be a lot of first-time buyers hitting the market at this point in time. But the pandemic and unexpected material costs due to supply chain issues substantially interfered with a rate of construction that could have and would have prevented such a dearth of housing. There’s still a lot of economic uncertainty and builders seem to be hedging their bets.
There are also other factors at play depending on where you live. More people are buying single family homes and condos as investment properties to use as short (and long) term rentals. This includes institutional buyers in some markets which, again, adds to the shortage of homes available for your everyday buyer.
I hope this sheds some light on some of the factors that are affecting buyers and sellers alike. In my next post, I will share some of my thoughts on How To Shop For a House, and some of the things buyers can do even now to try and make homebuying go a bit more smoothly.