Today’s Real Estate Inventory Shortage and What It Means for Denver
Limited inventories of for-sale homes continue to push home prices higher across the country.
A recent article from the National Association of REALTORS® (NAR) analyzed the reasons behind this real estate inventory shortage. It highlighted several causes including the fact that homeowners are deciding to stay put, and home-builders are “still keeping supplies tight.”
Furthermore, during the National Association of Real Estate Editors' annual conference, Lawrence Yun, chief economist of NAR, blamed the majority of the inventory shortage on the lack of new construction, saying:
“We will still have an inventory shortage if builders won't build. It is just simple math."
Other economists during the same panel event mentioned that the persistent lack of equity for a substantial number of homeowners four years into the housing recovery continues to avert any "would-be sellers." According to NAR, an estimated five million homes in the U.S. - or roughly 10 percent - are underwater and valued at less than the mortgage. Frank Nothaft, CoreLogic's chief economist, suggested that some homeowners may be hesitant to sell if they recently refinanced at interest rates of less than 4 percent and are now reluctant to give up those low rates. Another reason for this shortage may be the increases in single-family homes being offered for rent that have dented the overall supply of homes for-sale, Nothaft estimates that since the downturn investors have purchased three million single-family homes and converted them into rentals.
Other possible factors include rigid mortgage standards, prohibitive land costs, and limited lending to small builders, all of which might have prompted a lower supply of homes for sale.
What does this mean for Denver?
The month of June ended with 6,197 active listings – a 10 percent increase over the previous month, but still 20 percent less year over year. Denver has experienced inventory shortage in the past 18 months, but even so home prices continue to rise, and buyer demand continues to stay strong.
We asked expert Steve D. Danyliw, Broker/Owner at Danyliw & Associates and a DMAR Market Trends Committee member, to weigh in:
“There are two major factors are having an influence on the real estate inventory in the Denver housing market. Historically low interest rates affect us all, and this is giving all home owners a good reason to stay put. New home builders and the subcontractors that support them have learned from the last downturn. The builder’s business strategy is based on lower production levels today in the hope that this will promote long term sustainability. They are afraid of being caught over extended when the market hits another downturn. Where we differ nationally is in the area of equity. We have seen considerable increases in value for more than five years and most Denver area homeowners have recovered from the market collapse starting in 2007. Simply put, we have fewer underwater homeowners and we (Denver) started to recover before the other major US markets. Other contributing factors are a generally good economy and job growth.”
