Chicago first-time home buyers won’t be getting breaks from the real estate market anytime soon, according to a recent Forbes article. Persistently low home inventory is a “new normal” that will be with us for the next few years. Here’s highlights from the article, along with our own two cents!
The lack of affordable home inventory is a national problem. As of October 2016, there were 2.02 million homes listed for sale, which is about a 4.3 month supply.
In other words, at the current pace of sales, it would take just over 4 months for buyers to gobble up everything on the market, assuming no new listings became available. A balanced market is considered to be about a 6-month supply.
One of the reasons home supply has been stubbornly low, is due to a slow pace of new home construction. The Great Recession nailed home builders hard, putting smaller companies out of business altogether, and making credit difficult for the builders who remained. From 2007 through 2016, residential construction averaged about 870,000 new units a year. This is not keeping pace with the rate of U.S household formation, which stands at 1.1 to 1.2 million net new households each year.
At the same time, it’s estimated that 300,000 to 400,000 older, uninhabitable homes are demolished each year.
By the math of real estate economist Lawrence Yun, new home construction needs to be around 1.5 million units per year to keep pace, and should be at 1.7 million million units a year to make up for the supply deficit. In the interim, the gap between new households and available homes gets wider.
We’re going to be perfectly honest, and tell you that for first-time home buyers, the low inventory situation isn’t likely to improve with new construction. This is because home builders typically focus on upscale housing developments that command a bigger buck. With rare exception, you won’t see many builders putting together homes for under $250,000. A bunch of new homes priced at $349,000 to $499,999 might be statistically good for the market, but it doesn’t put inventory at first-time buyer prices.
We also lost a great deal of affordable home inventory to real estate investors during the past several years. Unless investors begin to sell some of the single-family homes they’ve turned into rentals, the entry-level market will stay tight. Currently, investors have no motive to sell because rents have been going up steadily in most areas of the country. With strong cash flow, income tax breaks, and an ample supply of anxious tenants, landlords are sitting pretty.
This doesn’t mean you can’t find an affordable home for sale, or that the market situation won’t change. It wasn’t all that long ago that the foreclosure crisis was underway, and homes were going for crazy cheap! The real estate market is continually reacting to economic and demographic forces. You can’t control all that, but you can control how you handle your financial situation, and how you prepare for home ownership! The right home usually shows up for those who are ready for it.
StartingPoint Realty – helping first-time Chicago home buyers!
StartingPoint Realty specializes in serving first-time home buyers throughout Chicago and the Northwest suburbs. We provide complete education and guidance during the entire home buying process!
Be sure to attend a free home buying seminar to learn about Chicago home buying! Always feel welcome to contact us for help with your Chicago home buying questions!
Ryan Gable Broker/CEO Starting Point Realty
Become a StartingPoint Realty Facebook Fan
Follow StartingPoint Realty on Twitter