Why is inventory so low?

Why is inventory so low?

by Susan Herst

I read an article recently by Chris Trapani of the Sereno Group regarding our low residential real estate inventory nationwide and its causes.  Here is a summary of the factors it discussed which I feel are pertinent to our local market.

1.  An unprecedented number of institutional investors have entered the residential real estate market acquiring large blocks of properties.  This inventory is now frozen and being held as they rent them creating cash flow streams.

2.  A sustained low interested rate environment means many homeowners and investors have either purchased or refinanced their properties locking in very low interest rates over the past six years, making it less likely these homes will come up anytime soon since they have such favorable financing.

3.  Values are rising and not at their peak levels.  Until prices reach their peak levels across the board, homeowners won’t voluntarily be listing their homes for sale because there is a sense that values will continue to climb.

4.  There is not place for the move-up (or downsizing) buyer to go, so their homes in turn will not come on the market.  Lower inventory begets lower inventory.  Retirees are finding limited or no options for retirement communities, which limits the top end market.  Seniors are not motivated to sell unless they know exactly where they are going.

5.  With the financial recession, there has been stunted new development over the past seven years and a low level of new housing starts.  A prolonged decrease in new home development multiplies the low inventory gap.  The start to finish building cycle can be lengthy and talk multiple years to plan, approve, build and market the new developments.

6.  I would add this… we are experiencing population growth in Durham and the greater Triangle area which of course only increases the demand for our limit supply of homes.

The overall conclusion is inventory will remain low for an extended period of time.  If you’d like a copy of the article in its entirety, I am happy to share it; just email me at susanherst@urbandurham.com.