Explaining Why There’s Nothing for Sale: A Theory
Just when Twin Cities Realtors and brokers thought local housing inventory couldn’t get any tighter . . . it did.
As of this week, there are barely over 10,000 units for sale in the entire 13-county metro area.
That compares with more than 30,000 units for sale a decade ago.
In fact, you’d have to go back to the mid-1990’s to find another time when so few units were available — and the Twin Cities was hardly the same size then.
Exactly what the $%#!% is going on??
Economic Snapshot
The culprit isn’t underwater homeowners any more; in most parts of the Twin Cities, prices have rebounded close to previous cycle highs (but not so high as to threaten affordability; see next).
It’s not interest rates, which are still historically (and surprisingly) low.
And it’s not Buyer purchasing power: the diversified Twin Cities economy continues to generate good jobs — local unemployment is below 4% — for the well-educated area work force.
Give up?
Vicious Cycle; “Not Wanting to Settle”
My theory is that we’ve reached the stage in the housing cycle where tight inventory is now begetting tight inventory.
In other words, plenty of Sellers would be more than happy to sell . . . if they could find another place to live.
With few choices available, however, Sellers are faced with having to settle (and quickly) when it comes to buying a new home; or, finding a temporary rental, and dealing with all the hassle that comes with (leases, storage, moving twice, etc.).
That’s one reason why so-called “reverse Contingencies” are poised to make a comeback this Spring (note: in a typical Contingency, the Buyer has a specified amount of time to sell their current home, called “the backup house.” In a reverse Contingency, the Seller has a prescribed amount of time — commonly 10-14 days — to find a new home).
Breaking the Impasse
What will cause the Twin Cities housing market to break out of this cycle?
My guess: two things — but with the caveat that it may take some time.
One. According to Econ 101, constrained supply drives up prices.
In turn, higher prices elicit more Sellers.
At some point, then, housing prices will rise high enough that more would-be Sellers will be enticed to grab the money . . . and figure out their next move, next.
Two. Higher prices will also coax builders to increase supply via new construction.
In fact, that’s already happening.
However, the lead time to meaningfully add to the Twin Cities inventory is likely 2-3 years.
In the short run (like, now), Sellers whose homes may have a blemish or two or may otherwise be unique may want to consider taking advantage of the lack of competition, and test the (very warm) waters.
Sellers, you know how to reach me . . . 🙂
P.S.: That last insight is courtesy of City Lakes Office Manager Jennifer Cutter.
