Real Estate Articles
State of Housing: Strong demand, tight inventory and more millennials
According to the latest Realtor analysis, strong buyer demand, constrained inventory, and ready-to-buy first timers, many of whom are millennials, are the key underlying dynamics driving today's housing market.
"The macro-factors that have defined real estate in recent years - strong demand and weak supply - continue to set the tone for the industry," said Joe Kirchner, senior economist for realtor.com, the official site of the National Association of Realtors.
Leading indicators point to a robust and growing U.S. economy. Realtor.com cites consumer confidence has spiked and unemployment at 4.1 percent has fallen to its lowest level since 2000. According to November data from the U.S. Labor Department, the economy added jobs for a record 86th consecutive months, and retail sales capped a strong year with 2017 holiday sales increasing more than 5.5 percent year-over-year. Except for some volatility the past week, the U.S. stock market has reached all-time highs over the last few months.
As far as the housing market goes, the inventory shortage is the single biggest factor affecting the market. Home prices are rising and sales are being held back primarily due to fewer homes for sale. Realtor.com reports sales growth of existing U.S. homes only increased 1.1 percent in 2017, compared to a 3.8 percent gain the previous year. On the other hand, prices appreciated 5.8 percent on average during 2017, compared to 5.1 percent a year earlier.
Inventory fell 8.8 percent nationally in the 12 months ending Dec. 31, 2017 versus a 10.7 percent dip a year earlier. Although single-family housing starts jumped 8.4 percent and 10.2 percent the previous year, construction has not kept pace with demand.
Data from realtor.com shows millennial first time home-buyers were frustrated by the inventory pinch in the last 12 months. This generation took its time, but is now ready for homeownership. Many millennials actively pursued home purchases, but hit the wall of tight inventory.
Back in Cupertino last week, Bay Area real estate analyst Carole Rodoni told Silicon Valley Realtors that millennials are "tough and demanding and they are coming in droves." This generation prefers homes in trendy neighborhood-like cities with walking access to parks, restaurants, gyms, and other amenities. There are a number of cities just like this in Silicon Valley, but there is a severe shortage of homes in the region, she said.
Bill Moody, president of the Silicon Valley Association of Realtors, said unless more homes are built, Silicon Valley, as vibrant as it is, will continue to be challenged by an inventory shortage. Moody noted as of Feb. 5, there were only 487 single-family homes and townhomes/condos on the market in Santa Clara County, compared with 516 the week before. Moody pointed out that trendy neighborhoods like Los Gatos and Willow Glen have a mere 31 and 23, homes on inventory, respectively.
"We have less than two weeks of inventory and a median home price of over $1.1 million is setting the trend in Santa Clara County," said Moody.
Moody said the new tax law that caps the mortgage interest deduction at $750,000 and combined state and local property, sales and state income tax deductions at $10,000, is expected to impact home purchases, especially at the high-end market. Nevertheless, as long as companies continue producing in the region, strong demand, especially from millennials, and high prices and tight inventory will continue to define the market.
"Unlike the dot.com bubble in the mid-1990s, the big companies in our region today are not speculative. They are solid, they are expanding, they are producing. I don't think demand for homes will let up as long as they continue to do what they do," said Moody.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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