Supply vs. Demand
Demand for housing has remained strong for several years. Here are 8 Reasons Why People Are Still Eager to Buy Real Estate:
- Home prices are appreciating, and property is a safe investment over the long term.
- Millennials need homes to raise their families.
- Rents are high giving property owners’ excellent ROI on rental properties.
- Flips of older properties continue to create amazing returns.
- Real property is less risky than other investments (unless you get over-leveraged).
- The economy is steadily improving.
- Foreigners including Canadians are eager to own US property.
- Bankrupt buyers are over their seven-and-a-half year prohibition from the last recession and they can buy again.
The problem is that the supply of homes has not kept pace with the demand.
- There are fewer distressed homes on the market which means fewer easy pickings. At the highest point, between 2009-2012, 100,000 distressed homes were hitting the market every month. That number has dropped by 75% to about 25,000 per month now.
- From 2006 and to 2011 one and a half million construction workers were laid off as the recession took hold. A little more than half those jobs have been restored, but many skilled construction workers left the trade or are now of retirement age. Skilled labor is hard to find and is costing more.
- The equity that would make it worthwhile for millions of American homeowners to sell just isn’t there. You may have heard of homeowners that are underwater, owing more than they can sell their homes for, but what about those that are in a break-even scenario or the 4.7 million who have between 0% and 10% equity? None of these homeowners have enough to convert into a payment for a new home.
- Homeowners with ultra-low mortgages are reluctant to sell. They often feel they just cannot get a better deal.
- Institutional investors have bought thousands of homes to rent out. While the number of homes may be small, estimated at less than half a million, that is still a lot of homes that are not on the market.
- Potential sellers don’t want to sell because they are uncertain they will be able to find another home to buy. All agree that supply is low.