Easing The Crunch: The Push To Square Low Housing Supply With High Consumer Demand

Written by Barbara Pronin Posted On Friday, 11 September 2020 05:00 Easing The Crunch: The Push To Square Low Housing Supply With High Consumer Demand With Labor Day in the rearview mirror and winter holidays ahead, the typical drop in housing demand this year is barely a blip on the radar screen. “The market here is still crazy busy,” said Nelson Zide, executive vice president, ERA Key Realty Services, Framingham, Mass. “We continue to see buyers clamoring for homes, and for second homes, and anything decent under $1million is snapped up within days or hours. One home here listed at $525,000 drew 55 offers in a weekend.” The problem, said Zide, is supply. “In my 40 years in the real estate industry, this is the worst I’ve ever seen it.” The situation is not much different on the other side of the country in Nevada, California and Arizona where, according to Mark Stark, CEO, Berkshire Hathaway HomeServices Nevada Properties, prices are continually being pushed up by unrelenting low supply. “In the entry level space,” said Stark, “we have approximately a two- to three-week supply. In other price ranges, there is perhaps as six-week supply, and in highly desirable Orange County, California, a three week to 30-day supply.” In Michigan, noted, Dan Elsea, president, Real Estate One in Detroit, the 2.5-month supply that existed pre-pandemic has shrunk to half of that in homes priced under $500,000. “Prices here are rising dramatically, as much as a full five percent over a year ago,” Elsea said. “And that number may be low, as today’s closings reflect purchase contracts that were opened just post-shutdown.” And in Colorado Springs, zig-zagging across the nation in a random spot check, “there are 1,100 active single-family homes for sale right now, which is less than half the supply we had a year ago,” said Joe Clement, CEO, RE/MAX Properties. That summer’s busy buying season has extended into the fall is not surprising. “Because of the pandemic, the season got a very late start,” Clement noted, “and changing lifestyles prompted by the shutdown, plus the availability of rock-bottom interest rates, are keeping demand high into the fall. We have not seen any slowdown here, nor do we expect one for a while.” But the supply of inventory in most regions of the country, which was sluggish in most markets even pre-pandemic, has been unable to meet the demand. “Early in the COVID-19 crisis, many sellers pulled back, or held back, fearful of strangers walking through their homes,” said Zide. “To an extent, there is still some of that, in spite of the strict safety protocols we have in place. But the larger concern for many potential sellers is where they will move if they sell.” Seniors ready to downsize are online just like the rest of us, Zide added. They know full well that if they sell the large, family home they’ve been living in for decades, they will be in competition for the few available smaller properties “They’re not going to assisted living at this point,” he said, “and they don’t want to compete in the heavily-contested low- to -mid-range space. So, unless they are moving in with their kids, they are in no hurry to sell.” New construction would help. “But builders are just now getting back into play,” said Elsea. “Land is expensive and financing is tough, especially for new construction in the more affordable, mid-range space.” In fact, according to Robert Dietz, senior vice president and chief economist for the National Association of Home Builders, builder confidence is at 35-year high as developers note the lean resale inventory and see a growing demand for new homes. “The big challenge is lumber,” said Dietz. “The hot housing market, insufficient domestic production, and tariffs on Canadian imports have resulted in a 160 percent increase in lumber prices since mid-April.” That is adding about $16,000 per new single-family home, he said. “But building is slowly picking up after recession-lows in the spring,” he noted. “The number of single-family homes in various stages of construction in July was just three percent lower than it was last July, while construction of multi-family residences has increased by almost 10 percent year over year.” If new construction is slow to meet the need, how do we bring more sellers into the market? “Realtors need to do more work behind the scenes,” said Clement. “Our job is to work harder with pocket listings - that is, when we know a seller would list a home if he or she could find the right home to move to, we need to be working our databases, our sphere of influence, looking to find that right home.” What are the chances that demand will exceed supply well into the new year? “We don’t know what we don’t know,” said Stark. “Unemployment is a big factor, especially in regions like ours, where the hospitality industry has been so hard-hit. What will happen when/if eviction protections end? What will happen in terms of the pandemic itself? There are many unknowns to factor in.” What we do know, said Zide, is that consumers may need to look further afield to find suitable properties - further from the city center, for example, or at properties that are on busier streets, or that need a little TLC. “We are not in recession-mode,” Zide said. “We are in a pandemic. Concessions will need to be made until the housing supply catches up to the need.”