The U.S. real estate market currently is experiencing the worst inventory deficiency in 20 years, and new data from the realtor.com Housing Shortage Study suggests two primary reasons: A) Boomers unwillingness to sell, and B) a large number of people who believe their current home fits their family’s needs.
The key reason why the tight supply? Put the blame on the boomers
As reported by the study, about 59% of respondents aren’t thinking about selling their home in the following year, but nearly 35% plan to sell while about 6% aren’t sure. However, 60% of the people intending to sell are millennial’s who want to move to a bigger home (25%) or one with nicer features (24%).
Millennial’s
Millennial’s with intends to sell could mean excellent news for first-time buyers since starter homes remain the most sought-after price point in today’s market, down 17% year-over-year when compared to medium-sized home inventory down 10%, and larger-size home supply down 5% year-over-year.
But even if millennial’s want to sell their starter home within the next year, they could decide against it.
“The housing shortage forced many first-time home buyers to consider smaller homes and condos as a way to literally get their foot in the door,” says Danielle Hale, chief economist for realtor.com. “Our survey data reveals that we may see more of these homes hitting the market in the next year – but whether these owners actually list will depend on whether they can find another home.”
Baby boomers
Those bigger or nicer homes coveted by millennial’s who would like to move, however, are largely owned by baby boomers – 85% of baby boomers surveyed said they are certainly not planning to sell their home in the next year. The home ownership rate for boomers (78%) is actually two times as high as millennial’s (41%), and if boomers choose to stay, about 33 million properties – many urban condos or suburban single-family homes – will not be there for millennial’s.
“Boomers indeed hold the key to those homes the market desperately needs, both in the urban condo and the detached suburban home segment,” says Hale. “But with a strong economy and rising home prices, there’s really no reason for established homeowners to sell in the short term. Although down-sizing might be on the minds of boomers, they face the same inventory shortages and price increases plaguing millennial’s.”
Historically, older age groups have moved about four times less than younger age groups, and even though that ratio has somewhat remained stable over the years, the population mix hasn’t. The share of the population between the ages of 55 and 74 years old has expanded by 30% in the last 30 years from 16% in 1985 to 21% in 2015.
Why don’t you want to sell?
Out of those homeowners with no plans to sell, approximately 63% stated that their current home meets the demands of their family. The other most favored reasons include low interest rates (16%), a recently purchased home (15%), a requirement to make home improvements and low property taxes (each cited by 13%).
“Life events drive real estate transactions,” says Hale. “When the majority of homeowners feel that their family’s needs are being met by their current home, there is nothing compelling them to put their home on the market.”
Top reasons for not selling by generation
Baby boomers: 72% indicated that their current home fits the needs of their family, followed by low interest rates (16%), concerns about financial security (13%) and the need to make some home improvements (12%).
Millennial’s: 52% indicated that their top cause for not selling is that their home fits their family needs, followed by 27% recently purchasing their home and approximately 16% citing low interest rates.
Gen Y: The # 1 reasons not to sell include: home meeting family needs (65%), low interest rates (16%) and low property taxes (16%).
Another key reason behind homeowners staying put for an extended period, in accordance with the National Association of Realtors®, is due to inadequate levels of new home construction during the last decade.
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