A clearer picture of what 2016 will be like.
The first three months of the year indicate we will see 2016 mirror 2015 even more than I expected. The spring selling season has begun and while we temporarily saw an increase in homes coming on the market in January, that inventory was quickly absorbed to the point where there are fewer houses on the market now then there were this time last year. We will see another spike in inventory through April as most sellers are aware this is the time of year when buyer activity is at its peak.
There is an alarming trend that is coming to roost and will likely not go away anytime soon; there is a ridiculously low amount of townhomes and condominiums available. As of this writing, there are only 39 such properties on the market! The lack of affordable housing is no longer just affecting those making significantly less than the Area Median Income; it is impacting those households making 80% to 100% of AMI. For Douglas County that is roughly $82,000 to $102,000 per year. There are a few things causing this. Limited inventory in the sub $400K price range which is actually due to the lack of inventory in the $400k to $500k range. The sellers in the sub $400K range need houses to move into and without those they are holding back from putting theirs on the market. There is plenty of demand out there as families are growing in size and in general people’s economic situation is improving thus increasing their budget for housing. The problem is they can’t find what they want for a move-up home and are therefore not selling their home. This dynamic exists all the way up the housing “food chain” until you reach the mid to high level luxury market.
What’s the “fix”? it is multi-faceted. We need the following things:
Increased new home construction – currently limited by availability and cost of labor and materials
Increased townhome and condominium construction – currently limited by the above reasons and also the current Construction Defects issues where developers and builders are not able to obtain anything close to affordable insurance for these projects
Increase in the release of investment properties – during the downturn investor snapped up low priced homes and are making outstanding cash flow and therefore holding onto them longer.
Another increase in the value of homes in the $450K to $550K range. I think once those properties increase about 10 to 12% from where they are now you will see a lot more resale inventory. At that point two things will happen; folks will have enough equity to afford near luxury or luxury homes or they will have enough to downsize and pay cash for all or most of a down-sized home. The luxury market in some areas is not appreciating as fast as the mid-level market so the gains in the mid-level market will outpace the increase in higher end home prices. For those looking to downsize the lower end properties have gained so much to date that the mid-level homeowners need more equity to make the numbers work for them. Of course this all depends on a fairly stable interest rate environment which is likely for the next couple of years so I think the odds are pretty good of things balancing out better than they are now in the next 24 months.