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Possible Causes for the Housing Inventory Shortage

It seems that when a house which is priced in the entry-level price point hits the market, multiple buyers come out of the woodwork all trying to get that same house. Why is this happening?

It seems that even though we’ve been saying for quite some time that there is a severe shortage of homes for sale, especially in the lower price range, the shortage has gotten worse. A recent report just came across my desk which says that there are now 9% fewer homes for sale then there were one year ago.

There are several reasons. One is that the supply continues to be less than the demand. Very simply, a demographic change is contributing to the high demand as the millennial generation is entering the home buying market. And along with this is low levels of new home construction in the entry-level price points. And this is a big part of the reason for the overwhelming demand. What new construction there is, is usually in the upper price ranges and out of reach of the first time and entry-level home buyer.

In addition, the entry level homes that were previously being sold every few years, are no longer available because they have been converted into rental properties. In addition, even though the housing bubble was a number of years ago, there are still many homeowners in the entry level homes who have a negative equity situation. And in that case, they cannot afford, quite often, to sell their home and move up into the bigger home.

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