What is causing the housing shortage?

There are several factors that have contributed to the protracted low inventory we have been experiencing for the past 5+ years, including:

1. Mortgage interest rates: Many homeowners have fixed rate mortgages with terms that are more favorable than any they could currently get. This reduces their incentive to move so we are seeing people staying put or opting to renovate rather than sell and purchase a new home.

2. Limited new construction: Homebuilders changed their patterns of production following the 2008 financial crisis and never fully returned to “normal”. Add to that the increased cost of materials and labor shortages and you end up with an inadequate number of new builds to meet the growing population.

3. Baby boomers: According to The Albany Business Review, 54% of boomers never plan to sell their homes. In 2024, baby boomers accounted for 20% of the population but are more than 37% of the nation’s homeowners. This has created a dearth of re-sale options for younger generations to move in to.

4. Millennials and Gen Z want to own homes: These cohorts are in the prime home buying years and they are ready to purchase. These buyers are competing against each other for limited inventory which is driving up prices and making home ownership more elusive.

5. Investor purchases: While this is a trend that occurs more frequently in the sun belt than around here, there is a growing number of private equity firms, hedge funds, Real Estate Investment Trusts (REITS), pension funds, and insurance companies that have invested in single family homes. They purchase the homes, often for cash, and many turn previously owner-occupied homes into long term rentals.

6. Lack of foreclosures and distressed sales: Ironically, the stricter regulations that came in the aftermath of the 2008 housing crisis have led to a reduction in foreclosures. While this is a good thing in many ways, it has resulted in fewer homes going on the market.

7. Zoning and regulatory constraints: While good zoning laws are designed to encourage smart growth, some communities have onerous regulations that limit new construction and don’t allow for higher density options such as townhomes and duplexes. Traditional suburban design with large single family homes on quarter acre lots might not be the best way to create new housing going forward.

The good news is that while these factors have limited the number of homes available for sale, there are still homes for sale and if you have been trying to decide if now is a good time to sell, rest assured it is!

Photo credit: Istock.com/Bilanol