Continuing our discussion of the Static Quo of the Status Quo. The No/Low Inventory of homes on the market. A move-up market bogged down. A move-down market with nowhere to go. An entry-level market with shrinking opportunities. What’s left? A side-ways market? Not really much incentive to sell a house just to be able to move into another one just like it. Home transactions flow out of life transitions and contrary to the old adage, the more things change in your life, the more you don’t want your home to stay the same.
In the old days, there was a natural progression in the prevailing wisdom about how home ownership should work. First you had to get into the market. Beg. Borrow. Scrimp. Save. Anything to buy that first home.
Then you settled in. Built sweat equity. Waited for appreciation. And voila! Three to five years later, you had a stepping stone to the next bigger, better place. Then, you settled back in again. Repeated same.
Somewhere between the 3rd and 5th move-up – you were arrived at the end all/be all of perfect homes. Until of course you realized that life really wasn’t going to end there. And the biggest lesson life teaches over a lifetime is, you never really arrive. There’s always one more change ahead. But then… I digress…
Here’s the list we started last week – factors that in one way or another or in conjunction with each other that are helping to squeeze the current listing inventory. (Remember low inventory tends to become a self-fulfilling prophecy. Sellers become Buyers after they sell, so if no one is selling then not as many are buying either. Low inventory is a cause and an effect.)
– Prop 13 Deterrence – Limits on Capital Gain Exemptions
– Step-ups in Tax Basis – Sustained Low Interest Rates
What else can we add to the mix of contributing factors? Certainly each of the following plays a role in holding down the growth of inventory at this unique juncture in history.
– Fundamental Changes in Mortgage Lending
– Unprecedented Numbers of Cash Offers
– Inherent Undesirability of Contingent Offers
– Corresponding Low Rental Market Inventory
– Increasing Numbers of Foreign Investors
– Differences between New Tech & Old Tech Trends
– Shrinking Middle Class/Concentration of Wealth with 1%
– Higher Employment w/o Corresponding Wage Increases
– Lack of Suitable Housing Density
– Slow Growth Planning Policies/Land-Use Politics
– Huge Surge in Aging Baby-Boomer Demographic
– Changing Millennial Attitudes about Home
– New Paradigm of Risk-Aversion since the Meltdown of 2008
Need we go on? Not right now since we are out of room anyway. Next week – we’ll start talking about how some/all of the above can align in different ways to create a series of perfect storms for individuals.