Inventory Insanity: The Secret Economic Forces Fueling the Housing Shortage

17930 Kelok Rd, Lake Oswego, OR 97034
Presented by Laura Piccard | Offered at $2,750,000 | MLS# 21518152

From Inman

Many consumers may not realize it, but they’re increasingly competing against institutional investors and contending with soaring building costs.

Agents are exhausted and consumers are stretched thin. But despite everyone being fed up, the ongoing housing supply shortage drags on with no end in sight.

As Inman has previously reported, the problem is multifaceted. The coronavirus pandemic, for example, has reshuffled job markets. And at the same time, a years-long building shortfall and wave of millennials hitting homebuying age has further exacerbated the problem.

But those aren’t the only issues. In fact, there are multiple other forces that have, perhaps inadvertently, conspired to make housing both more scarce and more expensive — but which are also largely off the radar of most consumers. Despite their lower profile, though, these forces are having a tremendous impact on the housing market right now.

For our purposes here, we’ll focus on two such forces: the soaring cost of building materials, and the spiking interest in housing among investors. Together, these two things are major contributors to today’s housing market, and the lack of inventory that is sweeping so many markets.

Building supplies are getting way more expensive

The cost of building supplies has been ticking upward for a long time now, but according to David Logan — a senior economist with the National Association of Home Builders (NAHB) — the pandemic made the problem worse. That’s because the companies that make things like lumber bet that there would be a “precipitous drop in housing demand” during the pandemic, and that bet proved to be wrong.

“Producers of lumber, they shut down like most every other business needed to,” Logan told Inman. “But when production came back, mills had curtailed their production by as much as 50 percent.”

Logan called this a “fatal mistake” on the part of lumber companies, in part because demand for housing itself has surged and in part because on top of that DIY home remodeling has also become more popular during the pandemic.

The result is a kind of triple whammy where supply is low, while demand from both contractors and everyday consumers is higher than ever. It’s no surprise then that, according to Logan, the cost of lumber has tripled since a year ago.

“I would say it’s certainly unprecedented in so far as a surge of demand unexpectedly coincides with a large decline in supply,” Logan added.

Just by February, the NAHB estimated that this trend had added more than $24,000 to the cost of a newly built single-family home.

Data from the U.S Bureau of Labor Statistics further bears this out, showing that the prices for plywood, lumber, veneer, pallets and various other items have jumped up recently.

Lumber may be the most prominent material impacted by this trend, but Logan also said it is “by no means the only culprit in this increase of the cost to built a home.” Other materials that have seen price increases include concrete, the oriented strand board (OSB) that is used in home wall paneling, and many other products.

Another NAHB report further notes that the price of steel mill products has jumped 22 percent in just the last three months.

The consequences of these price increases are far-reaching. In a series of reports, NAHB has revealed that contractors this spring are now having difficult conversations with their clients about the cost of materials, and that those costs are delaying critical home repairs. The costs are also cutting into the supply of affordable homes, especially in lower-cost suburbs where wood-frame building is the most common construction method.

Logan doesn’t expect these conditions to last forever, but in the meantime he said the prevailing sentiment among builders is one of “concern.”

Institutional investors are flocking to the housing industry

At the same time that building homes is getting more expensive, deep-pocketed investors are also snapping up more and more housing. Rick Palacios Jr., director of research for John Burns Real Estate Consulting, told Inman that right now investors are buying 20 percent of all homes in the U.S. Asked if that was enough to sway prices and housing supply, Palacios answered without hesitation: “yes.”

“That percentage gets even higher in a lot of markets,” he added. “Almost a quarter of all housing transactions are going to investors.”

Palacios pointed to Phoenix as an example, saying that nearly 30 percent of sales in the Arizona city are to investors. Las Vegas, Houston, and Tampa, Florida, also all have higher-than-average numbers of sales going to investors. Many of these markets also happen to be iBuying hotspots, and Palacios said firms such as Opendoor can end up having a major impact on the supply landscape in cities where they are active.

Of course, “investors” is a broad category. Palacios explained that it includes everyone from fix-and-flip operators to iBuyers to rental companies. But the result of all this interest among investors is that would-be homeowners are facing more competition and higher prices.

A report from John Burns Real Estate Consulting — which was provided to Inman — further teases this idea out, showing that investors have zeroed in on lower-cost homes. The report also notes that “cash purchases account for 67 percent of homes sold below $100k and 31 percent of homes sold between $100k and $200k.”

Some of this investor activity makes obvious sense. Given that there is a supply shortfall, as well as soaring prices, flippers stand to make a significant profit by simply buying houses and then selling them a short time later. Palacios said places like Phoenix and Boise, Idaho, are ideal backdrops for that kind of activity.

Interest from landlords, on the other hand, may be slightly less understandable given that right now they have to pay top dollar for their properties. That contrasts significantly from the housing bubble in 2008, when institutional investors were able to snap up thousands of houses at a relative bargain.

However, Palacios said that “there’s a global quest for yield” going on among investors right now. At the same time, yields from vehicles like U.S. Treasuries have tanked while investment in commercial real estate became unappealing thanks to COVID-related shutdowns of stores, restaurants and hospitality businesses.

Residential real estate, and especially single-family housing, looks relatively safe by comparison. And Palacios said recent years have ultimately offered a kind of proof-of-concept that shows this type of investment works. As a result, institutions like pension and sovereign wealth funds — which may have mandates to invest in U.S. real estate — have increasingly gravitated toward housing. And if they have to pay top dollar for the properties, so be it because they’re in it for the long haul.

“Today’s investors are investing for both quick appreciation as well as yield and safety compared to other alternative investments,” Palacios added.

The John Burns report further notes that investors have gravitated toward residential real estate as a hedge against inflation and in an effort to diversify their assets.

This trend may not be readily apparent to consumers or their agents. When someone loses a bidding war, after all, they may never find out exactly who won. But like rising material costs, it is happening in the background and having a big impact. And that impact is likely to stick around for the foreseeable future.

“Housing investors are going wild, again,” the report ultimately concludes. “Limited new and resale housing supply, low mortgage rates, a global reach for yield, and what we’re calling the institutionalization of real estate investors are setting the stage for a home price boom that could stretch on for years, similar to the early 2000s.”

Full article on Inman


Homeownership is Full of Financial Benefits

13448 Foin-Follette #GM301, Black Butte Ranch, OR 97759
Presented by The Arends Realty Group | Offered at $1,750,000 | MLS# 220112898

From Keeping Current Matters

A Fannie Mae survey recently revealed some of the most highly-rated benefits of homeownership, which continue to be key drivers in today’s power-packed housing market. Here are the top four financial benefits of owning a home according to consumer respondents:

  • 88% – a better chance of saving for retirement
  • 87% – the best investment plan
  • 85% – the chance to be better off financially
  • 85% – the chance to build up wealth

Additional financial advantages of homeownership included in the survey are having the best overall tax situation and being able to live within your budget.

Does homeownership actually give you a better chance to build wealth?

No one can question a person’s unique feelings about the importance of homeownership. However, it’s fair to ask if the numbers justify homeownership as a financial asset.

Last fall, the Federal Reserve released the Survey of Consumer Finances, a report done every three years, with the latest edition covering through 2019. Their findings confirmed that homeownership is a clear financial benefit. The survey found that homeowners have forty times higher net worth than renters ($255,000 for homeowners compared to $6,300 for renters).

The difference in net worth between homeowners and renters has continued to grow. Here’s a graph showing the results of the last four Fed surveys:

The above graph only includes data through 2019, but according to CoreLogic, the equity held by homeowners grew by $26,300 over the last twelve months alone. That means the gap between the net worth of homeowners and renters has probably widened even further over the last year.

Some might argue the difference in net worth may be due to homeowners normally having larger incomes than renters and therefore the ability to save more money. However, a study by First American shows homeowners have greater net worth than renters regardless of their income level. Here are the findings:

Others may think homeowners are older and that’s why they have a greater net worth. However, a Joint Center for Housing Studies of Harvard University report on homeowners and renters over the age of 65 reveals: “The ability to build equity puts homeowners far ahead of renters in terms of household wealth…the median owner age 65 and over had home equity of $143,500 and net wealth of $319,200. By comparison, the net wealth of the same-age renter was just $6,700.”

Homeowners 65 and older have 47.6 times greater net worth than renters.

Full article on Keeping Current Matters


Spring Buyers Have 50% Fewer Homes to Choose From

65904 Fazio Lane, Bend, OR 97701
Presented by Lisa Altick | Offered at $1,595,000 | MLS# 220113081

From REALTOR® Magazine

If your buyer is struggling to find a home for sale, they’re not alone. For every 10 homes for sale last year, there are fewer than five today. Home shoppers this spring have 52% fewer homes to choose from than last year, and they’re facing record-breaking prices, according to realtor.com®’s latest Monthly Housing Trends Report.

The national median list price in March increased to $370,000, a 15.6% jump compared to a year ago and an all-time high, realtor.com® reports.

Because of the high demand and low inventory, “home prices have skyrocketed, shattering previous records,” said Danielle Hale, realtor.com®’s chief economist. “We expect to see more sellers emerge in the weeks ahead, which should give buyers more options. Homes will likely continue to sell fast, but increasing interest rates and monthly costs could slow the pace of price gains unless we see a boost in demand from equity-rich repeat buyers.”

Listing prices increased the most in March in Austin, Texas, up 39.8% annually; Buffalo, N.Y., up 28.3%; and Los Angeles, up 24.8%.

Home buyers appear to be in a hurry. They are trying to buy before any further increases in home prices and mortgage rates, which have moved above their sub-3% averages over recent weeks.

But finding a home hasn’t been easy. ”In many areas of the country, there are half as many available homes for sale than a year ago—and in some markets that number increases to less than one-third,” Hale says.

The National Association of REALTORS® released its Pending Home Sales Index on Wednesday, which showed contract signings fell 10.6% in February, due to inventory shortages rather than a lack of buyer demand.

Full article on REALTOR® Magazine


Average Home Sale Price Hits All-Time Record

1745 NW 38th Ave, Camas, WA 98607
Presented by Connor Zuvich | Offered at $1,125,000 | MLS# 21257898

From housingwire.com

The median home sale price increased 16% year-over-year to $331,590 – an all-time high, per a report this week from Redfin. But that’s not stopping buyers from snatching up homes days after they’re listed.

During a four-week period ending March 21 and covering 400 metros, 58% of homes that went under contract had an accepted offer within the first two weeks on the market. And between March 14 and March 21, 61% of homes sold in that timeframe had been on the market two weeks or less, and 48% had sold in one week or less.

And offers are coming in well-above asking price, too. Nearly 40% of homes sold above their list price – another all-time high – and 15 percentage points higher year-over-year. The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, increased to 100.2%.

This is concerning for experts, though, many of whom believe home prices will remain high even after mortgage rates, inventory, and building material costs recover to pre-pandemic levels. Rates are already above 3% – after falling into the 2% range during the majority of 2020 – but construction companies are still struggling to keep up with insane lumber prices, stifling new builds.

National Association of Home Builders Chairman Chuck Fowke recently noted that supply shortages and high demand have caused lumber prices to jump “about 200%” since April 2020, and the elevated price of lumber is adding approximately $24,000 to the price of a new home.

“When the pandemic is over, purchasing a home is going to cost much more than ever before, putting homeownership much further out of reach for many Americans,” said Daryl Fairweather, Redfin chief economist. “That means a future in which most Americans will not have the opportunity to build wealth through home equity, which will worsen inequality in our society.”

Fairweather noted that President Joseph Biden’s hopeful $3 trillion infrastructure plan includes building 1.5 million sustainable homes, but there is no guarantee the bill will be “passed with every policy proposal intact.”

“America needs an audacious goal to increase the housing supply, given the U.S. is short 2.5 million homes,” she said. “It may be expensive to build millions of homes, but ignoring the problem would only cause housing to become more unaffordable and worsen housing insecurity.”

The best chance at home prices lowering is the continued rollout of the COVID-19 vaccine, experts said, which will allow lumber mills to reopen and material prices to lower. Builders will then be spending less on new builds, which will help the backlogging of inventory.

Full article on housingwire.com


Baby Boomers Are the Richest Home Sellers

19305 Hill Top Rd, Lake Oswego, OR 97034
Presented by The McCartan Group | Offered at $1,375,000 | MLS# 20599321

From REALTOR® Magazine

Baby boomers tended to make up the majority of sellers last year—at 43%—and they also saw the highest profits, too.

Overall, home sellers of all age groups who sold their homes last year saw a median gain of $66,000 more than what they originally purchased for—a $6,000 increase compared to the previous year. But for sellers ages 66 to 74, they saw a median gain of $100,000 in equity, according to the National Association of REALTORS®’ “2021 Home Buyer and Seller Generational Trends” report.

“In a real estate market that is tipped in favor of sellers, boomers and older homeowners are really the ones holding the cards,” says Danielle Hale, realtor.com®’s chief economist.

As the housing market surges, homeowners who’ve been in their homes the longest tend to see the highest profits at resale. Younger baby boomers (those between the ages of 56 to 65) tended to live in their homes a median of 14 years whereas older segment of baby boomers (those between the ages of 66 to 74) had lived in their homes a median of 16 years, according to NAR’s report. The median tenure in a home for the overall population is 10 years.

The primary reason baby boomers cited for selling their home: To purchase a similarly sized home closer to family members and friends. The second most popular reason to sell was to downsize.

The following is a chart broken down by age group of the median equity earned on a home recently sold, according to NAR’s report.

Full article on REALTOR® Magazine


U.S. Property Prices Have Soared Since Covid-19 Struck One Year Ago

3761 NW Devoto Ln, Portland, OR 97229
Presented by Debra Sabatino | Offered at $1,850,000 | MLS# 20270152

From Mansion Global

The housing market bounced back quicker than other parts of the economy, according to realtor.com

Median home prices in the U.S. have risen 14.3% since the World Health Organization declared Covid-19 a pandemic a year ago, according to a report Thursday from realtor.com.

The push for more space and a desire for affordable homes has led to a quick recovery for the country’s property market, according to realtor.com’s chief economist Danielle Hale.

“The housing market bounced back so much faster than other sectors of the economy that many have forgotten that housing activity slowed to a crawl during the early days of the pandemic,” she said in a statement. “One year later, the demand for housing remains strong, while supply remains limited.”

Indeed, as of the week ending March 7, new listings had fallen 27% compared to the same time last year, the data showed. Total inventory dropped 51% in the same time period, and there are nearly 500,000 fewer homes on the market than there were in March 2020.

Across the U.S., 32 of its 50 markets have surpassed realtor.com’s recovery benchmark in the week ending March 6. The greatest recovery has been registered in the cities of Austin, Denver, Riverside, Portland and Phoenix.

Limited supply, low mortgage rates and the continued demand to get out of cities has also meant homes are selling an average of six days faster than they did last year, the report found.

“In an environment where the number of homes listed for sale is limited and affordability is becoming more of a concern for many, the competition to find the home of your dreams is greater than ever,” said realtor.com CEO David Doctorow in a statement.

However, that could change soon.

“The housing market’s lopsided momentum could ease in the coming months,” Ms. Hale predicted in the report. “We expect the vaccine’s rollout to alleviate some sellers’ anxieties, which could help the supply crunch. At the same time, although interest rates remain low, they’ve begun to increase, which could test buyer demand in the coming months.”

The report did not break down the market by price point.

Full article on Mansion Global


Is It a Good Time to Sell My House?

61310 Meeks Cutoff Road, Bend, OR 97702
Presented by Sandy and John Kohlmoos | Offered at $1,199,000 | MLS# 220112580

From Keeping Current Matters

Last year, many homeowners thought twice about selling their houses due to the onset of the health crisis. This year, however, homeowners are beginning to regain their confidence when it comes to selling safely. The latest Home Purchase Sentiment Index (HPSI) by Fannie Mae shows that 57% of consumers believe now is a good time to sell.

Doug Duncan, Vice President and Chief Economist at Fannie Mae, explains:

“Overall, the index’s monthly increase was driven largely by a substantial jump in the share of consumers reporting that it’s a good time to sell a home, with many citing favorable mortgage rates, high home prices, and low housing inventory as their primary rationale.”

Normally, spring is the busiest season in the housing market – the time when many homeowners decide to list their houses. While this is obviously not a normal year since the pandemic is still very much upon us, experts are optimistic that consumer positivity around selling will lead to more homeowners making moves this year. Duncan continues to say:

“We will pay close attention to see if this newfound optimism develops into a trend.”

What does this mean if you’re thinking of selling your house?

The fact that there are so few houses available for sale today is one driver that’s encouraging consumers to think more positively about selling. The National Association of Realtors (NAR) states:

“Total housing inventory at the end of January amounted to 1.04 million units, down 1.9% from December and down 25.7% from one year ago (1.40 million).”

With so few homes available to buy, your house will be more likely to rise to the top of an eager purchaser’s wish list in this competitive market. Today’s high buyer activity is creating upward pressure on home prices and more multiple-offer scenarios. According to the Realtors Confidence Index Survey from NAR, the average home for sale is receiving 3.7 offers today, up from 2.3 offers just one year ago. This makes selling even more enticing.

In this kind of sellers’ market, you have a huge advantage in the process. And here’s another win – you can also use your equity toward a down payment on a new home when you move.

Wondering where you’ll go if you try to move while it’s so challenging to find a home to buy? Well, in many areas, there are more homes available at the higher end of the market, so finding a move-up home may be less of an issue if you’re ready to search for your dream home this spring.

Full article on Keeping Current Matters


New-Home Sales Jump 19% Annually

34155 NE Wilsonville Rd, Newberg, OR 97132
Presented by Jennifer Nash | Offered at $2,100,000 | MLS# 21492103

From Realtor Magazine

Sales of newly built, single-family homes in January moved 19% higher than a year ago, as home buyers sought more options under a lean number of existing homes for sale.

Newly built single-family home sales increased 4.3% last month over December 2020, reaching a seasonally adjusted annual rate of 923,000, the U.S. Department of Housing and Urban Development and U.S. Census Bureau reported Wednesday.

“Historically low mortgage rates and solid demand spurred an increase in new home sales in January,” says Chuck Fowke, chairman of the National Association of Home Builders. “However, rising affordability issues are looming this year, particularly increasing building material costs, including lumber, which is adding $24,000 to the price of a typical newly built home. Builders also cite rising regulatory issues as a potential concern.”

As existing-home inventory remains at all-time lows, more buyers are considering new home construction, says Robert Dietz, chief economist of the National Association of Home Builders. “Though rising building and development costs, combined with recent increases in mortgage interest rates, threaten to exacerbate existing affordability conditions,” he says. “Builders are exercising discipline to ensure home prices do not outpace buyer budgets.”

Inventories of new homes also remain tight at just a four-month supply at the current sales pace. New-home inventories are 6.3% lower than January 2020.

The median sales price for a new home was $346,400 in January, up 5.3% from a year earlier.

New-home sales rose by the highest amounts in the Midwest last month, up 12.6% annually. New-home sales also posted a 6.8% increase in the West and a 3% increase in the South. The only region of the U.S. to post a decline in new home sales in January was the Northeast, where new home sales fell 13.9% annually.

Full article on Realtor Magazine


Millennials Are Driving US Home Sales

628 NW Portland Avenue, Bend, OR 97701
Presented by Chris Scott | Offered at $1,249,000 | MLS# 220113262

From housingwire.com

Experts see even better days ahead as inventory returns in spring

For the second consecutive month, existing home sales rose, as January’s numbers were up 0.6% from December.

According to Lawrence Yun, chief economist for the National Association of Realtors, home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming in the market.

To him, sales easily could have been 20% higher if there had been more inventory and more choices.

Low inventory remains an enormous problem for the industry, especially with mortgage rates hanging below 3%. But experts agree better days are ahead, with more homeowners expected to move during the warmer months.

Yun also said the continued COVID-19 vaccine rollout and financial stimulus from President Joseph Biden’s American Rescue Plan will only aid in more home sales – which will in turn prop up the economy even more.

Younger-aged homebuyers are expected to continue to pack the market this year, especially with the possible passage of Biden’s $15,000 tax credit for first-time homebuyers.

First-time homebuyers were responsible for 33% of home sales in January, up from 31% in December 2020 and from 32% in January 2020.

Full article on housingwire.com


Dundee Hills Vineyard Changes Hands After More Than Two Decades

From winebusiness.com

Nicholas Family Vineyards will now be the new name of the estate, Bella Vida Vineyards, after being sold last January 21st for an undisclosed price.

Its new owner, Blair Nicholas, a resident of Olivenhain in San Diego County, settled on Bella Vida after touring multiple properties in the region. A retired attorney, living with his wife LJ, and four children, Blair is looking forward to experiencing the lifestyle and the community of the Dundee Hills.

The sale entailed a residence, which includes a tasting room on the first floor, a barn and farm equipment. However, Blair plans to design a new stand-alone tasting room and a wine cave. The family is also considering building a winery.

On the other hand, the seller, Steven Whiteside, bought the estate in 1996 and planted the vineyard in 1998. Until a few years ago, Whiteside split his time between Arizona, where he made pediatric orthotics and prosthetics, and the Willamette Valley.

Now 70, Whiteside, who loves his community, is now renting a property nearby. He looks forward to seeing the changes the Nicholas family plans to make to the Bella Vida property.

New owners of this vineyard estate were represented by Cascade Sotheby’s International Realty’s very own, Tina Jacobsen and Laura Piccard.

Full article on winebusiness.com