Housing inventory has been in the rough in the past year. There is a limited number of homes currently in the market especially among units most targeted by first-time home buyers.
This scarcity is why homes today are also at their most expensive based on historic averages. But what exactly brought upon this crisis?
Boomers prefer to age in place
A survey conducted by real estate site realtor.com revealed that 85 percent of the baby boomer generation who own their homes prefer to keep their homes within the next year.
More than 75 percent of the Boomer generation own their homes. In order for the younger generation to purchase their homes, Boomers have to make room by selling their homes while they downsize and move to their second homes. But because boomers prefer to stay put, this supposedly ideal cycle is cut short, causing a problem of occupancy for the new generation of would-be homeowners.
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Leasing is too lucrative
Rents are rising faster than home prices. Rental business is therefore lucrative for landlords, most of whom acquired their properties in the aftermath of the last housing crisis.
These investors have no incentive to sell, especially given the fact that there is hot demand for housing right now.
Owners want to keep the low interest on their mortgage
Per expert projections, mortgage interest rates will continue to go higher. Thirty-year fixed-rate is projected to reach 4.7 percent by December 2018, the highest since 2011.
Indeed, the past few years have been great for buyers who wanted to save on their mortgage interest payments. Many of those who were able to secure these rates would like to keep them and their homes.
Most newly constructed homes are not for entry-level
Most builders prefer to build move-up units that give them higher returns. In 2017, the Census Bureau identified 473,000 newly constructed units, 55 percent of which cost $300,000 which is more than the average budget of an average first-time homebuyer.
Builders say that they are challenged by the shortage in skilled labor, especially after the housing collapse.
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It’s costly to build
New regulations established in the recent years regarding the construction of new properties had builders by the neck.
Per Michael Neal, assistant vice president for forecasting and analysis for the National Association of Home Builders, regulations can account to as much as a quarter of the cost of an individual home.
Not only that, it also takes a lot of time for builders to get permits to build.
In some communities, homeowners establish rules regarding local zoning and land use. Some of these communities put restrictions on new constructions for purposes such as ensuring safety and securing their properties’ values on the market.
Fortunately, expert projections for 2018 point to easing home inventories. This is based on the number of new building permit applications. Home prices however would still climb but not at the same pace as it is going now.
What can a home buyer like you do?
- Set real expectations. Finding a home – and one that will meet your personal requirements at that – would take some time and patience.
- In the meantime, take your time to save for a down payment.
- Build good credit. A good credit rating will land you a low-interest rate on your mortgage.
- Prepare to make a competitive offer, and possibly participate in a bidding war.