A recent report from Trulia revealed that the number of homes for sale in the U.S. has dropped significantly over the last five years. During the first three months of 2017, inventory nationwide dropped to its lowest level on record.
Housing markets like Salt Lake City, Seattle, San Diego, and Nashville are really feeling the crunch, with inventory dropping by more than 60% since 2012.
Low Inventory Makes Home Buying ‘Season’ More Competitive
In March, the real estate information company Trulia published a report on housing supply in America. Specifically, they looked at the supply of homes listed for sale across the country, and also in the 100 largest metropolitan areas.
Their analysis revealed that the housing markets with the biggest increases in home prices have also experienced significant reductions in the supply of homes for sale. Buyers in these cities and metro areas face stiff competition and often have a harder time finding properties, due to a dearth of inventory.
According to Trulia’s analysis, the number of homes on the market nationwide dropped again during the first quarter of 2017, marking eight consecutive quarters of declining inventory. Starter homes (at the bottom of the pricing spectrum) fell the most, with a decline of 8.7% over the last year alone. The supply of higher-end or “premium” homes was more stable by comparison, with a decline of just 1.7% over the past year.
Shrinkage: 10 Cities Where Supply Is Way Down
Here are the ten U.S. housing markets with the largest decreases in for-sale inventory since 2012. The percentage beside each city shows how the number of homes for sale has changed over the last five years.
- Salt Lake City, Utah: -69.5%
- Seattle, Washington: -66.6%
- San Diego, California: -66.5%
- Nashville, Tennessee: -66.0%
- San Jose, California: -63.5%
- Colorado Springs, Colorado: -62.1%
- San Francisco, California: -62.0%
- Cambridge, Massachusetts: -61.9%
- Grand Rapids, Michigan: -61.9%
- Tacoma, Washington: -61.6%
Home buyers in these ten housing markets are facing increased competition due to limited supply. The housing inventory crunch in these markets has also boosted home prices. In many of these cities, house values have risen above the peak levels seen during the last housing boom.
According to a related press release: “A strong recovery may be partly to blame for the large drop in inventory some markets have experienced over the past five years. Housing markets — including San Francisco, Seattle, Nashville, and Colorado Springs — which have had greater home value recovery since 2012 have experienced larger decreases in inventory.”
Home prices in Seattle, for example, are currently 12% higher than they were during the housing boom of the early to mid 2000s. In Nashville, another hot housing market with limited inventory, prices are 20% higher than their pre-recession peak.
San Francisco, which has been called one of the most overvalued housing markets in the country, has rebounded even further. Home prices there are about 32% higher than the last peak, according to Trulia’s report.
How to Succeed in a Tight Housing Market
Home buyers in these ten housing markets — and other cities with limited inventory — need to bring their ‘A’ games when entering the market. Competition is high, and supply is low. This is especially true in the “starter home” price range, which is where most first-time home buyers tend to shop.
Here are some tips for succeeding in a housing market with limited inventory:
1. Get a real estate agent. An experienced agent can help you move quickly when the right property comes along, by making a sound offer based on current market conditions. Making a reasonable offer is always important, but even more so in a housing market with limited inventory and stiff competition among buyers.
2. Don’t sweat the small stuff. Going back and forth with a seller over minor inspection issues — or small difference between the asking and purchase price — could put the entire deal in jeopardy. This is especially true in a hot housing market with limited inventory, like the ones listed above. So be flexible. Keep the big picture in mind. Don’t sweat the small stuff. There’s probably another eager buyer right behind you, or several of them.
3. Remember who holds the cards. This an extension of tip #2 above. In a tight housing market, with limited supply and high competition, sellers have most of the bargaining power. That’s real estate reality. Ask for too many concessions from the seller, like a contribution toward your closing costs, and they might skip your offer in favor of the next one. Home buyers should be careful what they ask for in a sellers’ market.