With Home Sellers Making Record Profits, Why Aren’t There More Sellers?

It’s a great time to sell a home. According to Attom Data Solutions, sellers profited by an average of $54,000 at the end of 2017. That’s a 10-year high and it means sellers brought in an average return on investment of nearly 30 percent. So why aren’t more homeowners putting their homes on the market?

A big reason is that selling a home is the easy part. Finding a home to move into? Not so easy.

Especially with the extremely low supply of homes in many cities. This has resulted in higher prices, including bidding wars resulting in prices well above asking. While it’s good news for sellers, it is bad news for buyers — and sellers who now become buyers.

“It is fun and exciting to see a huge appreciation in your home,” said Allie Howard, a Redfin real estate agent in Seattle. “But what scares [sellers] is not wanting to be stuck in a rental scenario when homes continue to appreciate and they get concerned they will be priced out.”

West Coast home sellers have experienced the largest gains, with those in San Jose, California, earning a hefty a 91 percent return on investment at the end of 2017. San Francisco home sellers saw a return of 73 percent.

Seattle is another booming real estate market.

Homeowner Nicole Rendahl sold her four-bedroom Seattle home for $400,000 more than she paid for it in 2008. She purchased the home for $1,199,000 and just sold it for $1.6 million in November. The sale closed in just seven weeks.

She and her family are now looking to upgrade but they have been unable to find what they want. She hopes to find a place to move into by the end of the summer.

Contributing to the scarcity problem is the lack of new houses being built. Only one million homes are currently hitting the market — well below the historic norm of 1.5 million homes.

The limited choice of new home options means more people are staying put in the first place.

Owners are staying in their homes for a little more than eight years on average — double the rate from 2000 to 2008, when average tenure was four years.

“The longer home ownership tenure is a central piece to why the housing market is behaving as it is where home prices are rising fast and there is an inventory logjam,” said Daren Blomquist, senior vice president of communications at Attom.

Historically, the natural progression was for buyers in starter homes to trade up to larger homes after a few years, typically after starting a family. Now they are just staying in their starter home longer. This means fewer starter homes on the market, making it difficult for first-time buyers to break into the market.

“It is a bit of a chicken and egg situation. If builders built more homes, homeowners might move up, but because homeowners aren’t moving up, the builders aren’t seeing as much demand for new homes,” said Blomquist.

As interest rates rise this year the problem is expected to get worse.

 

Originally posted in Real Estate Digest – April 2018