Housing Supply Shortages Slowing First-time Buyers; Signs of Hope Exist for More New Construction
Real Estate In-Depth | November 2017
CHICAGO—Stubbornly low inventory conditions in a large swath of the country are behind the below-average share of first-time buyers in recent years, but there is gaining evidence of an increase in homebuilding may be around the corner.
So says NAR’s Jessica Lautz, managing director of survey research and communications at the National Association of Realtors, and Robert Dietz, chief economist at the National Association of Home Builders, at a session held earlier this week on housing supply and affordability at the 2017 Realtors Conference & Expo here.
Lautz and Dietz shared their prospective insights on the causes and effects of the nation’s continued shortage of new and existing homes for sale and how Realtors can successfully help their clients navigate these challenging market conditions.
Lautz, highlighting findings from NAR’s 2017 Profile of Home Buyers and Sellers, said supply constraints at the lower end of the market are a big part of the reason why first-time buyers made up only 34% of sales over the past year and have lagged the historical average of 39% for several years. With low inventory pushing prices upward, successful buyers have needed higher household incomes and in the past year made smaller down payments. Additionally, the time a home was on the market fell to a new survey low this year of three weeks.
“The month’s supply of homes continues to be way under a balanced market of six months, home prices have risen year-over-year for 67 straight months and multiple offers on listings for sale are a common occurrence,” said Lautz. “Without enough listings on the market, affordability is decreasing, and buyers are increasingly saying finding the right home is their top struggle.”
Much of Dietz’s presentation covered why the homebuilding industry is struggling to construct more homes. He said building lags overall demand for a variety of reasons, including an aging workforce that is causing a shortage of construction workers, low lot availability, steadily rising costs of building materials and land and the difficulties builders are having in obtaining construction loans.
“It’s more expensive to build homes and it’s having an effect on supply. Over the last five years, the total effect of building codes, land use, environmental laws and other rules have caused regulatory costs to rise 29%,” said NAHB’s Dietz.
Despite these continuous challenges hampering the building industry, Dietz did offer some signs of hope for improvements in coming years. He pointed to the post-election surge in builder confidence and the pace of single-family housing starts slowly trending towards normalized levels.
“There’s also been the start of a shift to building smaller homes and townhomes,” said Dietz. “I’m bullish on townhouses over the next few years. They are the perfect bridge from renting to homeownership for first-time buyers.”
Another topic of discussion during the session was about the growing consumer appetite for energy-efficient features and green building. Realtors are responding to these preferences by increasingly promoting green features in listings, and homebuilders are finding that buyers are willing to pay more for green homes.
“There’s an incredible growth opportunity for green building in coming years,” said Dietz.
Changing consumer home preferences amidst tight inventory conditions can be a challenging endeavor for buyers and sellers. That is why, according to Lautz, consumers now more than ever are seeking the experience and guidance of a Realtor, a member of NAR, to help them buy and sell a home.
“For your buyer clients, help them understand that it is OK, and not uncommon, for them to not get the first home they make an offer on,” said Lautz.
Lautz and Dietz both concluded their remarks saying they are optimistic that housing demand—driven by millennials and their overwhelming desire to eventually own a home—will increase in coming years.