RE/MAX of Boulder Podcast: Inventory Shortage and How Long It Will Last - Part One

Posted by on Monday, August 24th, 2015 at 9:29am.

The RE/MAX of Boulder Podcast continues to keep the Boulder community and future home buyers and sellers updated with the latest information regarding the real estate market. This week RE/MAX of Boulder’s Duane Duggan, host of the RE/MAX of Boulder Podcast, shares his thoughts about current market trends and Colorado’s inventory shortage.

Here are 8 reasons why real estate inventory is so low.

1.    Housing starts are less than needed based on population growth

“New construction or lack thereof, is one of the strongest or biggest reasons for inventory shortage” says Duggan.  During the economic downturn of 2007 to 2012, developers were only building about 300,000 homes per year, resulting in a five to seven- year period of major housing shortage. As a nation we need to be building about 1.5 million homes per year in order to keep up with population growth. Today builders are having much more difficulty starting up again after many trades have left the industry, and builders are now dealing with longer permit times and longer times to build a house. “What we’re finding is that homes that typically used to take 5 to 6 months to build, are now taking 10 to 11 months, which is frustrating for both the builder and also the consumer.” 

2.    Population increasing because of immigration and births

Today in 2015, immigration is rapidly increasing and birth rates continue to be strong. Colorado is currently recognized as the fourth-ranked state for population growth in the nation, demonstrating that the desirability of our state has continued to grow. A new wave in our economy and in the marketplace can also be attributed to what Duggan refers to as the “echo-boomers” or the kids of the baby boomers who are now entering the home-buying age and creating new pressures on demand.

3.    The Boomerang Buyer

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 in their own economic world and obtain a loan again,” says Duggan. “And now these buyers are ready to enter back into the marketplace.”

4.    The Dormant Seller

Unlike REALTORS®, many homeowners do not pay attention to the marketplace and simply haven’t heard that the market is improving. Another reason for dormant sellers not to place their home on the market is the fear of not finding the next house to move into, encouraging a “stay put attitude” because inventory is so low.

5.    Values haven’t caught up with the loan amounts to create enough equity to allow a move

“This is changing pretty rapidly now as we have appreciating values,” explains Duggan. Sellers are now receiving more than their loan amount, providing them with equity to become buyers, and “as more buyers emerge, it puts higher demand on the marketplace.”

6.    People are staying in their homes nine years on the average instead of five

On average people have typically lived in their homes for about five years, which in the past has motivated REALTORS® and agents to contact their clients heavily at year five. However, recently this has not been the case.  As more people “stay put” in their homes, people are staying in their homes nine years on average instead of five, resulting in less turnover and smaller inventory.

7.    New household formation creating demand

Now that the job market and economy have improved, the 25 and 30-year olds who were once living with Mom and Dad are now moving out of the basement. This in turn creates one more buyer “which puts a lot more pressure on demand,” says Duggan.

8.    People are living longer and staying in their homes

Fifteen or twenty years ago as folks reached their 80s and 90s they would typically be placed in assisted living or other types of senior communities. However, more recently we are finding that times are changing and this is no longer the case. “Today much of the older generation are staying in their homes as long as they can, and they do that by the variety of services that have emerged in to our world,” Duggan explains. “In other words, there are people that can help them get the lawn mowed, clean the house, be companions to them, take them shopping and take them to church and such, which enables them to stay in their home and in turn, leaving one more property off the market.”

Stay tuned for Part Two of the Inventory Shortage discussing why market inventory is so low.

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