What’s the Deal with Hardly Any Homes or Condos for Sale?

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If you’ve been paying attention to the local real estate market or you’ve been reading my newsletters, you’re probably aware of the fact that we have been in an ‘inventory constrained’ market for at least 2-3 years now and it is not yet improving. In fact, we are seeing even lower levels of homes and condos available for sale this year than we have for over years! Whether it is called constrained inventory, low inventory, an inventory shortage or a strong seller’s market – what is means is that there is more demand from buyers than there is supply available and that results in less choice for buyers, fast or very fast sales on properties that are priced reasonable, and increased property values and prices.

But what is causing this continuing inventory shortage?

In previous posts I explained that new home construction went to very low levels after the 2008 market crash and since it takes time to gear up again, it is not keeping up with the number of newly formed households or demand for additional homes and condos. This is not as significant in Pinellas County since it is the most densely populated county in Florida and there is not much land left available for building communities. But in areas of Hillsborough and Pasco counties where there is land available, adequate new construction can help take some of the pressure off even in Pinellas.

Some of the slowness in getting to an adequate level of new construction has to do with the fact that the number of smaller new construction builders is dwindling due to the difficult in getting financing since local banks have made it more difficult for them. Another factor in the slowness of new construction ramping up has to do with the fact that even large construction companies can’t keep up with demand due to difficulty in finding adequate labor (skilled workers). Neither of these situations have an easy or fast remedy.

However, there are other reasons for the ongoing shortage and these have to do with the insufficient number of existing homeowners who are selling their homes. When demand is increasing, new construction is needed but sales by existing homeowners is also needed to meet increasing demand – and we aren’t seeing enough of an increase yet of existing homeowners selling their property.

This article will focus on the factors that are affecting the existing homeowner ‘resale’ inventory.

Distressed Sales

You might not think so but distressed sales do fall into this category, even foreclosures. The number of foreclosure properties for sale are way down and the number of short sales are getting closer and closer to zero.

On the positive side, that means less people are being foreclosed upon which is good. However, on the negative side, those people who are being foreclosed upon are either not as easily able to get approval on short sales even when there is a valid reason (less pressure on the banks by the government) or they choose not to do a short sale because of the tax burden for the forgiven debt. Up until a couple of years ago there was legislation in effect that would waive the taxes someone would have to pay on the debt forgiven by their lender on a short sale. That expired at the end of 2014 and was never renewed for 2015. So many of the people who could have benefitted from doing a short sale choose not to do so because they felt they couldn’t handle an additional tax of thousands or tens of thousands of dollars.

Unfortunately most of these people don’t realize that their accountant could help them with this in the situation where they are ‘not solvent’. If you know someone in this situation please tell them to contact their accountant or contact me so I can tell them what to ask their accountant or tax preparer – they may have an option that could help them.

The large decrease in foreclosure and short sale activity has contributed to the falling level of inventory.

Homeowner Equity, Interest Rates

One reason why some homeowners aren’t selling when they actually would like to is because they either have no equity or very little equity in their home. They may not be in a situation where they would have to or could even qualify to do a short sale, but they also don’t have enough equity in their home to purchase another home or sometimes even to move. In these situations the homeowners are just waiting until values go up enough to provide enough equity so that they can sell and move or sell and buy another property.

In some other cases, homeowners in the last several years bought a home and financed the purchase with an interest rate much lower than what they could get now. This isn’t a huge number of homeowners since interest rates haven’t gone up that significantly, yet. But I have heard this come up from time to time and it is affecting some homeowners’ decisions.

The third way this comes up is with homeowners who either purchased when lending guidelines were much more lax or when they were in much better financial shape. In some of these cases the homeowner would be happy to sell their current home and upsize, downsize, rightsize or even just move to another area – but they have already found out that they wouldn’t qualify for financing at this time and don’t want to go from homeownership to renting. In other cases, the homeowner hasn’t checked but thinks they won’t qualify for financing so they just stay where they are.

The real solution for the last 2 situations above are for the homeowner to work with a well-qualified and experience mortgage professional to really determine if they can or can’t get financing right now (I have seen some people who were wrongly told they couldn’t then later find out they can when working with someone who knows what they are doing) and in the case where they can’t qualify for financing right now to find out what they need to do to get into a position where they will (have a plan and timeframe).

Past Reasons for Selling Ignored

2 of the common reasons that people in the past would sell are, in some cases not have the same effect on homeowners.

Relocation or moving for job reasons – this is happening less than it did 10-15 years ago and so this reduces the number of people who are selling their current home to move to another area for a job.

Moving when retiring – more people are renovating their current home rather than buying a new one so that they can live out the rest of their years where they have been. 10-15 years ago more people moved after they retired. With less people doing this now, there are less retirees selling and so this also reduces available inventory as compared to the past.

Low Inventory Leads to Less Sellers

This might not make sense to you at first but it will once I explain.

In a high percentage of cases, sellers are not just selling – they are selling and then buying and will be moving from one home to another or from a home to a condo, etc. When there is a shortage of inventory these potential sellers may be afraid that if they try to sell their home they won’t be able to find a new one quickly enough and will end up ‘homeless’. In a more balance market this is not as much of a concern but in this current market it is something a potential seller has to consider.

If the seller will be paying cash for their new property and they aren’t reliant on the sale of their current home to have the funds to buy the new one, this is not as much of a problem. But when someone has to sell their current home in order to have the money to buy a new one, it definitely can be more complicated.

There are ways to make this work and I have been involved in quite a few of these situations over the last couple of years. If you or someone you know could use help with a situation like this please let me know.

This is another one of the factors that is resulting in a continuing low level of inventory in our local market.

Summary

I can’t say when the levels of inventory will come back up to a more normal level or what might result in that happening. From my experience and what I’ve been seeing I think that we will see a change in the next 6-18 months and there will be a gradual shift towards a more normal level of inventory. That could happen sooner or later and any national, international or economic events that occur could change everything like we saw in 2008 (hopefully that isn’t in our future).

But for now we have to deal with the current market we have and both buyers and sellers need to approach it correctly to get the best result and sellers should definitely not wait to sell until it is too late.

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