One of the barriers that home buyers in our region are facing right now is that we don’t have enough houses for sale. We’ve had a shortage of houses in our selling inventory for several years, and the Maryland Association of Realtors’ Housing Statistics for January 2016 show that nearly every jurisdiction in the state has fewer properties in “inventory” this year than at the same time last year. The problem has been growing.
In fact, housing inventory has been low since the end of the Great Recession. Most analysts have felt the reason fewer homeowners were selling their homes was that the financial crisis reduced property value so much that many people couldn’t sell without taking a huge loss. The wave of foreclosure sales and “short sales” between 2009 and 2014 drove down prices even further. At the peak of that wave, in the first quarter of 2012, 31.4% of homeowners in the U.S. owed more on their house than they could sell it for, the classic definition of being “under water” in your house.
There does seem to be a light at the end of this long tunnel. Last month, Zillow released a study of the housing market, finding that “only” 13.4% of homeowners are still “under water,” compared to 16.9% in February 2015. Those rising prices, while a result of the tight inventory, have actually started to promise a cure for the disorder by steadily reducing that percentage.
As more buyers come back into the real estate market, our tight inventory will cause home prices to rise slowly as nice new listings disappear quickly, usually at or over list price. Fewer homeowners will be “under water” as the prices rise more. So, as this cause-effect spirals outward, growing families can sell their starter home and move into a bigger one. In turn, that allows “empty nesters” to sell the big house and move into something smaller and easier to maintain during their retirement years. That normal cycle of home ownership in the U.S., which nearly came to a halt five years ago, should continue to strengthen at a faster rate in 2016.
Interest rates have remained very low so far, despite the Federal Reserve’s interest rate hikes, because the housing market has been so sluggish, so fragile. If we see significant growth and strengthening of housing activity this year, you can expect those low rates to finally start to rise.
For those of us who labor in the housing sector, this trend is welcome. It’s been a while coming. We’re all optimistic that light at the end of the tunnel isn’t another train!