Housing Inventory’s Affect on Home Prices

A recent article indicated that all-time low housing inventories and higher prices have hampered affordability both for first-time and move-up buyers.

Today’s low inventories began with the 2008 housing collapse. Foreclosures reached all-time highs and investors bought up foreclosed properties at bargain-basement prices. Former homeowners became renters, thus increasing demand for rentals, and that pushed rents significantly higher. Now, with still high rent levels, rather than selling homes at current appreciated levels, investors are keeping them. Cash flows and return-on-investment (ROI) levels are such that it makes more sense to keep them than to sell.

As to supply, with current land and construction costs, builder profits are squeezed on smaller homes so fewer are being built. That limits supply forcing first time buyers to look for existing homes and, per basic supply/demand economics, that elevates prices.

Per Trulia, the amount of a first-time buyer’s income required to qualify for a starter home, is 2.9% higher today than this time last year and the situation is similar for move-up buyers.

The complete economic picture regarding housing is more complex but, for someone considering a purchase, either as a first-time or move-up buyer, it’s very important that they are clear on their goals. Then, with the knowledge and experience of a “seasoned” realtor and loan officer, you can find the right home with the right loan.

Joe Adamson   Ofc: (408) 975-2400 x123 joe@mortgagemagic.com

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