Prices Up, Sales Down: The Inventory Effect On Real Estate
By Ross Boissoneau | Aug. 6, 2018
The real estate market is hot, with average sale prices continuing to climb. The real estate market is down, as the number of home sales continues to drop, both locally and nationally. Area realtors say there are several factors, but demand outstripping supply is the single biggest reason for both trends -- and the National Association of Realtors agrees. “The lack of inventory – I think that’s the main factor,” says Mike Annelin, a realtor with Century 21 Northland.
Often those homes that are available are garnering multiple offers, pushing prices higher. “Most realtors have lots of buyers looking,” says Beccy Janis, of Coldwell Banker Schmidt.
While those looking to sell can get a good price, they may choose not to if they can’t then buy what they want where they want it. “Those who might like to sell…what are they going to buy?” says Annelin. “It’s kind of a stalemate.”
The demand pushed June’s sales prices to a new all-time high nationally, according to the National Association of Realtors. The median existing-home price for all housing types was $276,900, surpassing the previous high-water mark set in May. That was up 5.2 percent from June 2017. June’s price increase marks the 76th straight month of year-over-year gains.
This region shows similar results: The median price in the five-county area was $236,000 in June, compared with $224,000 for June 2017; in Grand Traverse County it was $240,000, and a year ago it was $229,350.
But there were 281 home sales in the five-county region in June, compared with 329 last June, a 15 percent decline. In Grand Traverse County, the numbers show a steeper decline of 17 percent.
Lawrence Yun, NAR’s chief economist, says closings fell on an annual basis for the fourth straight month. “The root cause is without a doubt the severe housing shortage,” he says. “What is for sale in most areas is going under contract very fast. This dynamic is keeping home price growth elevated, pricing out would-be buyers and ultimately slowing sales.”
There may be more trouble on the horizon, as natural disasters continue to destroy homes. The wildfires in California have already destroyed more than 1,000 homes, while we are still recovering from the hurricanes that devastated Puerto Rico, Florida and Texas, destroying thousands of houses. “The shortage is being exacerbated by events no one anticipated. People better look at the supply chain,” warns Kim Pontius, executive vice president of the Traverse Area Association of Realtors, noting that all those homes will have to be rebuilt.
Pontius says the shortage of those in the building trades is also playing into the downturn; builders can’t keep up with demand. “We’re not adding to the quantity of new inventory,” he says.
The price of materials is also going up. “Construction costs are crazy,” says Annelin.
Exacerbating the problem is the fact that builders can make more money on higher-end homes than starter homes, that’s typically what they will choose to do. “The cost to build affordable homes is so high and they can’t make money doing it,” Janis says.
And the recession that drove people out of the state and/or the construction industry brought building to a complete halt for nearly a decade. That means there is a lack of homes from five to ten years old, further aggravating the problem.
Another factor: the cost of borrowing is going up. Janis notes while interest rates are still relatively low, the fact they are increasing is causing the market to slow.
Annelin agrees. “Banks are willing to lend,” he says. “But rates have gone up. When it goes up a point, that’s a substantial amount of money.”