Home prices are up, mainly because homes, and especially lower-priced ones, are a lot harder to find. Existing inventory is at the lowest level since 2005. With less homes on the market, prices have naturally increased. Most home shoppers are finding it a lot more difficult to find a home than in years past. That’s especially true for houses in the more “affordable” range, like trailer homes and starter homes. One reason for the dearth of houses on the market is that owners of existing homes aren’t moving up to more expensive homes like they did in the past. That means they’re not vacating current properties as they move upward. Many homeowners are standing pat on houses that still haven’t gained back the value they lost during the 2006-2009 housing bust.
Home Shortage Creates Home Price Jump
The graph below from Trulia shows the supply-side shortage that’s causing the home price jump. The housing bubble in the mid-2000s dumped a lot of excess inventory on the market. That was bad for the economy and bad for homeowners, but it created a buyer’s market for shoppers. Suddenly a glut of homes hit the market and prices fell drastically as homeowners defaulted on mortgages. More recently the real estate market moved back into healthier territory, but at the expense of creating the opposite problem. Namely, with less supply, home prices have climbed and the search for a new house has become much more difficult.
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Home Prices, Less Inventory and the Economy
If home prices have risen partly because some owners are holding onto houses longer, then another reason is the economy. A less vibrant economy has meant decreased income prospects for some homeowners. For some, it has meant more trouble getting a loan to move up to a bigger or more expensive house. Even increased healthcare costs for ailing parents has prevented some from moving upward. The silver lining to the inventory shortage is new construction. Home builders like KB Homes and Lennar are reporting solid business in recent months. Still, new homes make up only about 10% of total home sales. That factor is even more pronounced in markets like New York or San Francisco, where the shortage is based more on available land.
Buyers Feel the Increase in Home Prices Most
The group hit worst by the jump in home prices is buyers. Shoppers looking for starter homes and trailer homes have felt the worst pain. These home buyers tend to spend nearly 40% of their income on home payments. That makes it a lot harder to get loans, since it’s right up against lender regulations. The best solution would be faster growth in the economy. Higher incomes would mean more upward mobility, more vacant homes, a brighter inventory situation and lower home prices.