The fact that the housing market is cyclical is no secret. Every buyer’s market is eventually followed by a seller’s market, and so forth. Yet the most recent seller’s market has come as a bit of a surprise. Rising prices and dwindling inventory seem to be unusual during periods of robust economic activity. But that’s exactly where the market is right now. So what’s going on?
Cut through all the expert analysis and you might discover that the single biggest influence in the current market has nothing to do with what the analysts are saying. It may be something completely different; something discussed in a Wall Street Journal article published on November 3.
According to contributor Laura Kusisto, the current market is suffering from a lack of supply. And that lack of supply is the direct result of homeowners deciding to stay where they are. Kusisto’s research shows that baby boomers are leading the way. They are stay in their homes rather than downsizing.
Sputtering Home Sales
Kusisto began her piece talking about how home sales in America have been sputtering in recent years. It doesn’t take long for her to get to the meat, though. According to her research, current homeowners are now staying in their homes for as long as 13 years. That is five years longer than in 2010.
Staying put for 13 years rather than 8 disrupts the housing ladder model. That model dictates that new homeowners buy a starter home, wait 5 to 8 years, and then upsize to a larger family home. They wait another 5 to 8 years before buying their ‘forever home’, where they will stay in until the kids go off to college. They sell one last time in order to downsize for retirement.
Simple math shows that homeowners are staying put 62% longer than they did in 2010. Multiply that by the two or three times a typical homeowner is expected to sell, and it becomes clear where the problem lies. People are not selling like they used to. Therefore, they aren’t buying new homes either.
Existing Inventory and Prices
One of Utah’s top real estate agencies, city home COLLECTIVE, says they have seen a tightening in the local housing supply even though the area has been in the midst of a housing boom for several years. A lot of new houses are being built, but fewer existing homes are being sold.
Agency representatives say the circumstances are reflected in existing inventory and prices. Those who are willing to sell can ask premium price and pretty much get what they want. The situation is only exacerbated by continual population growth on the Wasatch Front for the better part of eight years.
Salt Lake City has been the beneficiary of robust economic activity that has brought both jobs and residents to the area. Indeed, most of the population growth Utah has experienced in recent years has been concentrated in the greater Salt Lake City area. The growth is reflected in housing.
If older homeowners in the city aren’t willing to sell, that leaves newly arriving residents to rent or pay to build new. It is a situation that is ripe for dwindling supply and rising prices.
The current housing market is a confluence of factors. Yet if the Wall Street Journal is to be believed, the single biggest factor is a willingness among baby boomers to stay in their homes longer. That decision is influencing the supply and demand trends that, until recently, were pretty reliable.