In the first quarter of 2018, there was a record low number of homes available to buy. In fact, as of May 7, 2018 there were only a total of 13 single-family homes shown as available in the IRES Multiple Listing Service (MLS) under $600,000 across Boulder, Louisville, and Lafayette. When buyers are out searching for houses, their most common question is, “Why is there such a shortage of homes?”
Thinking back to just a few short years ago during the great recession of 2007 to 2012, I used to produce “unsuccessful seller” studies for subdivisions. In some subdivisions, as much as 50- to 60- percent of the homes that were available did not sell. Whereas today in Boulder County, an expired listing — especially below the $1 million price range — is very rare.
In this two-part series of articles, I explain the multi-faceted reasons why housing inventory is so low in Boulder County.
New Housing Starts vs. Population Growth
There are many reasons that most markets across the country are experiencing a shortage of homes. The first one is sheer lack of supply compared to demand. The graph below from the US Census Bureau shows that the U.S. population is rising steadily. In order to provide housing for increased population, the housing industry needs to build.
In fact, Lawrence Yun, the Chief Economist for the National Association of REALTORS®, has said in his presentations that the housing industry needs to build about 1.5 million homes a year, just to keep up with population growth. When you look at the next graph from the US Census Bureau showing national housing starts, you can see that the industry hasn’t built 1.5 million homes since before the start of the recession in 2007. Each year, for the last 11 years, new construction vs. population growth has been falling short.
Within the city limits of Boulder, other than a few small in-fill projects, there are virtually no new single-family subdivisions. As you look out on the plains, you’ll see new home projects, but there are still difficulties meeting demand. Builders are facing a variety of challenges that prevent them from building affordable homes in a timely manner. Challenges include a shortage of supply of entitled lots, municipal regulation and expenses, shortage of construction labor and supplies, and increasing material costs.
Not to be confused with a buyer from Australia, Boomerang Buyers are individuals who possibly lost their home to short sale or foreclosure but are now back in the market to buy. As time passes they are able to recover their financial footing and obtain a loan again. The Boomerang Buyer returned to in the market in around 2015 as those who lost homes early in the recession had been able to repair their credit. According to Realty Trac, 7.3 million Boomerang Buyers per year nationally are coming back into the market.
The Dormant Seller
With inventory so low, the biggest fear of many prospective sellers is being able to find a replacement property. With that thought in mind, they develop a “stay put” attitude and don’t place their home on the market.
People are Living in their Homes Longer
According to the National Association of REALTORS®, the median amount of time homeowners spent in their homes before 2008 was 6 years. As the graph below shows, today it is 9 or 10 years. As more people remain in their homes to the tune of 9 years instead of 6, the result is less turnover and less inventory.
New Household Formation Creates Demand
The US Census Bureau has been keeping track of new household formation for years. The graph below shows that since 2010, there has been 10 million new households created. Each one of those households needs a place to live, adding more demand for available real estate.
People are Living Longer and Staying in their Homes
15 or 20 years ago, as folks lived to their eighties and nineties, the next move might have been to transition to an assisted living facility or other types of senior communities. Today, many of those in the older generation are staying in their homes as long as they can. They do that by taking advantage of the variety of services that have emerged. These services, for example, will help mow their lawn, clean their house, find companions for them, transport them to go shopping and to attend activities. This enables them to stay in their home longer, and in turn, keeps more property off the market.
Better Employment Numbers
The job market has significantly improved over the last few years, which has brought a lot more buyers into the market place. When you consider market factors, the employment level is even more important than interest rates because even if the interest rate is zero, and you don’t have a job, you can’t make the payment. As employment numbers continue to improve, more people can become buyers, creating more demand in the marketplace.
Keep an eye out for Part 2 of this two-part series in which I elucidate further reasons for the very low inventory of homes in our market.
About Duane Duggan: Duane Duggan has been a Realtor® for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: the Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, REALTOR® for Life. Also see his video podcasts about real estate topics on RE/MAX of Boulder’s YouTube channel.