Why is there such a shortage of homes for sale?

As with most things, the current housing supply shortage can't be explained by just one thing… there are multiple factors involved, many of them after-effects of the burst of the housing bubble about 10 years ago.

1. People aren't moving as often

One of the contributing factors is people simply aren't moving as often as they did prior to the housing market downturn so aren't selling their homes as often. This is compounded when they can't find a new home to buy because of the current short supply and decide to stay and remodel/renovate instead.

Median seller tenure in home

Chart from National Association of REALTORS® – PROFILE OF HOME BUYERS AND SELLERS 2016

From 1985 to 2008 people stayed in a home an average of 6 years before selling and buying another home. It rose after that, partly because potential sellers were underwater on their mortgages and couldn't afford to move. The average is now 10 years. This longer tenure is a trend I see reflected in current buyer decision-making even for first-time buyers, many of whom saw family and friends stuck when their homes lost value. The majority of buyers I work with now are planning to stay in their homes for 10 years or more. Nationally 15% of buyers say they play to stay 8-10 years and 26% 16 years or more! This diminishes the number of homes available for sale simply due to the lower turnover rate.

2. About half the homes sold 2009-2012 went to investors… many are renting them rather than selling them

When foreclosures dominated the market 2009-2012 many of those homes were gobbled up by investors. Some of the homes were rehabbed and resold but many of them were rehabbed and rented. Those homes don't have 'normal' turnover rates and contribute to the shortage of homes for sale, particularly in the lower price ranges.

Historical closed market share
Chart from Minneapolis Area Association of Realtors

3. New construction market share was 14.8% before the crash, it now has a 6.9% share

New construction also plummeted when the market adjusted and although it is now increasing, it still contributes to the shortage… compounded by the fact that available land may not match where buyers want to live and median price of a new construction house is $407,822 vs $252,500 for a previously owned house.

4. Rising rents and low interest rates create higher buyer demand

It isn't as much the number of new listings that is down as much that homes are being purchased at a higher rate. That is why inventory and months supply of inventory are the lowest on record.

Monthly Stats Report Feb 2017 (6)


5. Gen-Xers are not moving up as expected because many were underwater and remodeled/expanded instead

Many bought when they were single and as they married and started raising families they ran out of room. Many couldn't afford to sell because of lack of equity. If they liked where they were living, many chose to remodel/expand instead of moving.

6. Baby Boomers aren't downsizing as predicted

Instead of downsizing many Baby Boomers are deciding to stay where they are and renovating to age in place. Many are also living in multiple locations, both for weather and to be closer to family for part of the year. So they may be buying but not selling.

7. Move-up and downsizing sellers are afraid to sell for fear of not finding a home to buy

Those who do want to make a move are often afraid to sell until they find a new place to buy, which slows the supply chain. These homes may come on the market later in the season provided their owners find a new home.

8. Millennials are about 10 years behind previous generations in the home buying cycle… now ready to buy but there isn't enough housing turnover/new construction to fill the demand

Millennials are now buying, eating up the first-time home buyer inventory as soon as it hits the market…  where there is only about a 1-month supply…

Monthly Stats Report Feb 2017 (5)

Sharlene Hensrud, RE/MAX Results - Minneapolis-St. Paul Real Estate Market

HomesMSP Team - SharleneJohnAngela Minneapolis-St. Paul Realtors


Written By

I love what I do! Highly insightful, analytical and creative, there is nothing I love more than helping you find the right solution for your real estate transition. My mission is to serve my clients with honesty and integrity, exceeding their expectations in service and support… and to help others by donating a portion of every transaction to Habitat for Humanity.

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