Photo: Robert Clark
It’s slim pickings for American homebuyers right now — and it could become even slimmer in the coming months. With fewer homes to choose from, competition among buyers has been fierce, driving prices up at accelerated rates, according to a new report from the listing site Zillow.
Housing inventory has fallen year-over-year for the last 28 consecutive months, with over 9 percent fewer homes on the market than last year. May’s inventory fell at fastest pace in four years in May, says Zillow.
The last time the housing market saw such a dramatic annual drop in inventory was August 2013, when inventory fell 10.2 percent. And it’s possible inventory could continue to fall, says Zillow.
The homes that are for sale are being snatched up at record pace, averaging just 77 days on the market in April — the lowest number ever recorded by Zillow. May’s days on market figure was not yet available.
The scarcity of homes is igniting the market, with limited inventory becoming a growing issue since the end of the Great Recession. Home prices rose 7.4 percent year-over-year in May thanks in part to the scarcity of available homes, according to Zillow. National home prices are now hovering near an average of $200,000.
Rising home prices are pricing many younger American buyers out of the market entirely. But, as more Millennials are aging into their prime homeowner years, demand is steadily increasing. Instead of rising to meet the demand, supply is falling.
Builders are simply not building enough new homes. Since the financial crisis, housing starts remain well below historic levels. Buyers at the low-end of the market or starter homes are particularly affected, with builders opting to develop more “luxury” homes instead.
“t’s important to remember that, more often than not, builders have opted to focus on higher-end because construction costs are so high in part due to regulatory costs, land costs, labor costs, financing costs. Often, the high end is the only market segment where it is feasible for them to build, though many builders are trying to find ways to build more affordable homes,” Aaron Terrazas, a senior economist at Zillow, tells BuzzBuzzNews.
The heat emanating from the market right now is also keeping many current homeowners in their homes longer than in the past. They’re hesitant to make a move in the competitive market and, when they do decide to buy, they struggle to find an affordable home for sale in their market.
It’s a vicious cycle, says Zillow. Sellers are reluctant to sell in a highly competitive market, so they chose not to list — which further contributes to the overall inventory crisis.
“Assuming the economy continues to chug along as it has, demand is likely to remain high and inventory low,” Zillow predicts.
Click here to read the entire report.