Young Buyers Despair As Shortage Of Houses Causes Prices To Rise
Fears of a housing bubble are being stoked by double digit price gains across the nation.
Although the explosive New York market appears to have cooled during the last year, in the rest of the country, real estate’s jet engines are still firmly strapped on, fully fueled and sending prices skywards. The main reason is that there just aren’t enough homes to go round. According to a recent article on Realtor, in the fourth quarter of 2016, the number of homes for sale fell to the lowest level in nearly two decades, creating a coastal bubble that shows no sign of deflating. Great news for home flippers, terrible news for first time buyers.
The average price of a single-family home increased in 89 percent of metropolitan areas in the fourth quarter compared with a year earlier, the National Association of Realtors said. Adding further fuel to talk of a bubble, more than half of the 178 markets included in the report have now reached or surpassed their previous peaks. There were 1.65 million homes available for sale, 6.3 percent less than the same quarter a year earlier.
Also, 17 percent of metro areas experience a double digit increase from the year before—14 percent alone in the third quarter. Cities caught up in the upward maelstrom included Portland, as well as Orlando, Nashville, Memphis and Cincinnati. But why is there a shortage of houses? Surely real estate is supply and demand. If people want more houses, why can’t developers build them? There are several reasons.
First, after the last housing crash, many people lost the appetite to buy and sell houses. This, in turn, has caused a stagnancy in certain areas. Second, credit has remained tight and high down payment requirements have locked some new buyers out and kept them as renters. Finally, landlords are reluctant to sell and release their rental properties into the market for owner occupants because high rents have been a boon for them.
Home builders can’t keep up. According to Forbes, “about 1.1 to 1.2 million net new households are formed each year. So that is the number of new homes needed to be built just to accommodate this rise in housing demand.” Added to that number are the 3-400,000 dilapidated properties that go the way of the bulldozer. So, the total number of new homes needed is about 1.5 million per year. From 2007-2016, the annual number built was just over half that number at 870,000.
California is where the biggest gains have been happening. The Silicon Valley/San Jose area continues to gain altitude price wise. The median price of a single family-home there is now over $1 million. San Francisco is a close second. Anaheim and Honolulu were third and fourth.
Nationally, house prices were up 5.7 percent over the same time last year. Unlike the bubble of 2008, this boom seems set to run for a little while longer. At least, until there’s enough new housing to go round.
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