According to industry data, there is a 20-year low on national housing inventory. At first this seems like an alarming number but keep in mind the following data points are macroeconomic numbers which encompasshousing in the 100 largest U.S. metros from Q1 2012 to Q1 2017. According to one Trulia Report, higher prices and lower inventory seems to be a successive theme. The number of starter homes fell by 8.7% and trade-up homes fell by 7.9%. What makes matters worse is these 1st time homebuyer will have to spend about 3% more of their income on that 1st home purchase, comparative to last year, due to this lower inventory supply. The research in the report cites the blame for decrease in inventory is due to the strong market recovery some markets have underwent during the last five years. In addition, the markets that show the largest price gains relative to their pre-2008 levels also had the large drops in inventory.
With regards to the national data, the main reasons inventory fell were cited as:
Investors bought up a large amount of available inventory during the past few years and turning them into rental units.
Buyers are finding it hard to trade up to the next home segment due to prices of trade-up homes moving farther away from the buyer’s affordability.
Current homeowners simply don’t have enough equity in their homes to make a profit on a sale.
Again, the above is a national macroeconomic report and we need to look at Florida numbers to get a better idea of what’s going on with our Florida supply and demand.
Florida’s largest MLS, My Florida Regional MLS (MFRMLS), reported an inventory drop of 3.89% on active listings. Sales dollars increased 13.5% in February compared with the previous year and new pending sales are down 1.63%. New listings fell 5.8% compared to a year ago.
It’s a great time to be a seller in Florida. As can be expected, the lack of supply is driving up demand and price. The average sold price to original listing price was 94.6% which means sellers are getting more of their original asking price at the closing table. Another factor that sellers like are lower days on market (DOM) and in the past twelve months since February 2017, average DOM fell from 73 to 63 (13.7% decrease). One would think with these price increases and DOM decreases would spur more listings but there may be homeowners underwater still or they may simply be worried they won’t be able to afford a new home once they sell—this could potentially create a gridlock in the future.
Conversely, it’s NOT a great time to be a buyer in Florida.Mortgage rates are at a 2017 low, hovering just above 4% nationally, however, buyer affordability is also at a low. Prices are high and continue to increase. Buyers need to spend 14% more for a similar home they may have bought last year. In February of 2016, the median sold price was $171,000 and this last February we hit a median sold price of $194,900. Again, lack of inventory is to blame for these price increases. Listing inventory fell, year over year in February, 1,654 or 3.9% (and if you compare it to our five year average we are down 2,615 listings or 6%). Can everyone afford to spend 14% more? No. I’m anticipating we will have another year of potential buyers staying renters.
Market Bubbles? I believe we still have a good amount of time before there are any gridlock or bubbles popping. Markets are slowing down and I don’t believe we are seeing any “bubbles” per se, reminiscent of the recent housing crisis. The hot markets are simply slowing down.
Inventory? With regards to inventory, we are still well below the 50-year single-family home building average so builder’s may pick up on this inventory problem soon… Furthermore, new legislative policies could increase our single family market inventory in the MSAs we need it most. Capital gains tax reductions may be a policy that may incentivize sellers.
Rates? Rates affect buyer affordability. For every 10 basis points (0.10%) the rate shifts up, a certain percentage of borrowers will be pushed out of their capacity ratio straight into the rental market, which may be more affordable than buying a home in some areas. There are some markets that are hurt more with increasing rates, such as California.
Buyers and Sellers. All is not lost for buyers. I am seeing quality deals on both sides of the transactions. Smart buyers are doing more thorough due diligence and are negotiating a bit more based on their results, which in turn is resulting in the win/win scenarios we can all appreciate. That being said, in this seller’s market, where a seller need only list in the local MLS to obtain numerous offers, it is taking buyers a bit longer to shop for that perfect buy.