Low Inventory Poised to Create a New Crisis in the Housing Market

Current crisis may present opportunities for builders and lenders—make sure you’re ready with the right software at your organization

Low Inventory Poised to Create a New Crisis in the Housing MarketAccording to experts, the US housing market is once again poised for crisis, this time not because of bad financing, but because of a lack of supply. In every segment of the market—starter homes, trade-up homes, and premium homes—inventory is down and prices are up compared to homebuyer incomes.

The Trulia Inventory and Price Watch Report has the breakdown for these segments, based on data from January 1, 2012 to March 1, 2016 in the top largest 100 US metro areas:

Starter Homes: Since 2012, the number of starter homes on the market has dropped by 43.6 percent, while the median list price for these homes has increased 31.8 percent, from $116,932 to $154,156. In order to land one of these rare starter homes today, buyers now need to spend 37.7 percent of their income.

Trade-Up Homes: Inventory in the trade-up home category is also shrinking, with the number of homes decreasing by 41 percent between 2012 and 2016 and the median list price rising from $216,793 to $267,845. Homebuyers shopping in this category can now expect to spend 24.9 percent of their income.

Premium Homes: The number of premium homes on the market has decreased by 33.4 percent, and this category now dominates the market, accounting for 46.2 percent of inventory in 2016. The median list price for a premium home has increased from $451,148 in 2012 to $542,805 in 2016.

Of course, in some markets the numbers are much worse, making starter homes all but impossible for first-time buyers to get. For example, in Orange County the number of starter homes on the market has decreased by 79.4 percent.

What’s Driving the Trend?

Experts point to three main factors that are driving down the supply and availability of homes:

  • Foreclosures: During the recession, many starter homes and trade-up homes were snapped up by investors and turned into rentals, which took them out of the market.
  • Underwater mortgages: Many homeowners remain upside down on their mortgages. This disincentivizes them to sell because they do not want to take a loss.
  • Gridlock: The growing difference between premium list prices and trade-up list prices is causing gridlock at all levels, as fewer trade-up home owners see a premium home as a desirable or affordable option. Trade-up home owners are therefore less likely to sell their current home, which leaves no room for starter home owners to sell their homes, which leaves no inventory for first time home buyers.

Take Advantage of Market Trends with JDIO Software

If you are involved in the housing market as a builder or a construction lender, this current housing crisis may present some interesting opportunities for growing your business. Make sure your business is prepared to leap into action in an efficient, organized, and integrated manner using our JDIO software for construction management or fund control. Our JDIO software can be customized to your specific needs so please do not hesitate to contact us and request your free customized online demo.