What Is Causing the Low Supply of Homes for Sale?
We’ve seen headlines for months of soaring home prices fueled by solid buyer demand and an extremely low supply of active listings for sale. Despite the strong real estate market, why the decline in the number of homes for sale?
Here are a few phenomena that are at play:
Homes are selling quickly: The number of active listings for sale is affected by two significant dynamics: 1) how many new listings come on the market, and 2) how quickly buyers purchase them. Higher demand means a greater percentage of listings sell and sell more quickly. This rapid sales cycle significantly reduces the number of active listings on the market on any given day.
Homeowners are moving less frequently: As homes have become more expensive, homeowners have skewed older – and older people move much less frequently as they are established in careers and their families more settled. The median age of homebuyers was 47 in 2019 vs. 39 in 2010 (per National Association of Realtors). As of 2020, homeowners stay in their homes an average of about 8 years vs. about 5 in 2010 (per Attom Solutions). This reduced turnover has an enormous impact on inventory.
Many homes are selling off-market: Many homes are selling off-market before they hit the MLS and consumer-facing websites such as Zillow and Redfin. Strictly speaking, this is not an inventory reduction but does reduce the number of listings available using typical sources of public listing data (and affecting the statistics based on them).
Investors are inundating the market: Investors, institutional and individual, have been purchasing a higher percentage of U.S. homes to use as rental properties – currently 20% of housing sales (per John Burns Consulting). This began during the foreclosure crisis (by hedge funds) and accelerated with the current, desperate search for yield. Investors sell much less frequently, with considerable impact on the resale market. Besides income – boosted by extremely low mortgage rates – and potential appreciation, investors also enjoy very significant tax advantages, enhanced in the tax-law changes of 2017.
Homeowners are keeping their homes as rentals: Some homeowners are turning their homes into long-term rentals or vacation rentals (such as Airbnb) instead of selling them when moving to new homes.
Decline in new construction: New home construction has declined in many areas or remained extremely low for years.
