Zillow: Crisis-level inventory shortage plagues US housing market
- Dec 2017 was 35th consecutive month of decreasing inventory
- Heated competition among buyers driving multiple offers and higher home prices
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“Tight inventory fueled by a tight labor market and low interest rates propelled home values to record heights in 2017, but the outlook is now much less certain,” said Aaron Terrazas, Zillow senior economist.
Limited inventory could continue through 2018
This three-year widespread inventory crisis is unlikely to break in 2018, with just 16.7 percent of a panel of housing experts surveyed in a recent Zillow survey saying they expect a meaningful increase of homebuilding in 2018, a sign that limited inventory could continue to drive the housing market this year.
This will continue to play a significant role in driving up prices and creating particularly strong headwinds for first-time homebuyers. Just 6.3 percent of experts in the survey of more than a 100 economists said the inventory situation is the major real estate trend most likely to change this year.
To see the extent of which tax reform impacts builder behavior and their contributions in alleviating the ongoing inventory situation will be interesting. Whether they use any tax savings to expand production, build at lower price points and/or hire more workers will go a long way in determining how the housing market pans out this year and beyond.
“Tax reform will put more money in the pocket of the typical buyer, but will limit some housing-specific deductions,” Terrazas said. “Overall, this should increase demand for the most affordable homes and ease competition somewhat in the priciest market segments.”
The market is starving for relatively affordable new homes, and builders cannot and will not ignore this hungry market. Still, it won’t be easy for builders hamstrung by difficult market conditions. Land, labor and lumber prices are only expected to keep rising, which will force builders looking to meet market demand to search for less-expensive development options farther away from urban job cores.
“On the supply side, the market is starving for new homes, but it won’t be easy for builders struggling with high and rising land, labor and lumber costs,” Terrazas continued. “Aging millennials and young families may be able to find more affordable new homes for sale this year, but they’ll most likely be in further-flung suburbs with more grueling commutes to urban job centers.”