According to the National Association of Realtors (NAR), there’s a paucity of homes for sale now and because of this, existing home sale numbers dropped 3.2 percent in July and decreased slightly, year-over-year, for the first time since November 2015.
In a commentary, Lawrence Yun, NAR’s chief economist, said that “severely restrained inventory” and affordability pressures are the primary reasons for the sales slump.
“Realtors are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows,” Yun said. Yun added that with new-construction condos making up a fraction of all multifamily construction, existing home sales “suffered last month as condo buyers faced even stiffer supply constraints than those looking to purchase a single-family home.”
For home sellers, little competition means homes are being snapped up in record time, and for record prices. According to the Realtor.com Hotness Index, the median number of days that existing homes sold was 51 or less in the top 20 fastest-selling markets.
So, why aren’t sellers selling? After mulling it over and speaking with many experts and housing industry observers during these past few months, we’ve come to the conclusion there are five primary reasons sellers aren’t selling:
- They still need the space. Millennials and elderly parents are coming home to live in record numbers, according to census data. Homeowners need the space.
- They haven’t retired yet. Baby boomers are still working and want to continue to live near their places of work.
- It’s cheaper to live there than elsewhere. With mortgage interest rates flirting with all-time lows, plenty of homeowners have refinanced their properties and are now living for less than they could in another, even smaller, property.
- They’re still functionally underwater. Depending on where you live, if you bought between 2004 and 2007, the high point of the housing crisis cycle, you may still be underwater with your mortgage, meaning your house is worth less than the mortgage amount. And even if your home value is now even with your mortgage, you may be functionally underwater after you factor in the costs of selling one property and moving to another property (even if you rent instead of buy).
- They haven’t found anywhere they’d prefer (or can afford) to live. Finally, we end where we began, with the paucity of homes for sale. For most sellers, when they sell, they usually need a place to buy. And if they can’t find a place to buy that they like or can afford, they might just stay put.
If you’re a seller, now is a great time to sell. But until more people decide to do just that, housing prices will continue to spiral upward.