The Growing Housing Shortage Is Alarming

There is a shortage of homes for sale, and it’s worse than it’s ever been.

So how bad is the housing shortage and what does it mean to a market with buyers standing ready with low mortgage interest rate loans?

Today’s report focuses on the supply-side of the housing market, looking at what’s coming in and what present levels mean for home values and buyer opportunities today.

First, here's a peek at the newest listings to enter the market, sorted by the date they hit the market, newest first. Of course, you can re-sort them if you like.

New Listings In Tallahassee

Housing Market Defies Seasonal Norms

In normal years, the market is like the weather, and December is a very cool month for new listings and new sales. Families are gathering to enjoy the holidays, and many people do not want their homes on the market during this time.

But this is 2020. This is not normal. The market is hotter today than it was in April or May. 

Let’s take an in-depth look at the supply side of the housing market and examine exactly what's happening with the inventory of homes for sale.

I’ll give you a  hint before we move on ... sellers are coming back! 

Year Over Year Fresh Listings Rise (AGAIN)

For the fifth consecutive month, the number of fresh new listings entering the market has grown. Considering that last year saw more listings than any other going back to 2014, this is quite remarkable.

The graph above shows a comparison of how each month fared (percentage-wise) compared to the same month in the prior year for fresh new listings entering the MLS.

I use the term “fresh” to describe homes listed for sale that were not previously listed. These are homes that are truly new to the market, not merely old inventory that was canceled and relisted by the agent or a new agent.

The year started off well with new sellers entering the market, but then COVID kicked in and caused inventory to move much lower. In fact, during what are normally the 3 most-active months for new listings, Tallahassee endured huge declines due to the onset of the pandemic.

The past five months have recorded 113 more fresh listings than in the same five months of last year, representing a growth of about 6%. It is likely that much of this growth can be attributed to sellers who opted out of the market earlier in the year when the pandemic first came to town.

In the past, we knew that there were reluctant sellers who were waiting to sell their homes due to the pandemic, but I think it's safe to say that the majority of the pent-up supply has, for the most part, been consumed by now.

I think we'll begin to see historical seasonality return to the supply-side of the real estate market, as low mortgage interest rates have helped the housing market overcome the fear and the resulting indecision caused by the pandemic earlier in the year.

Even though the flow of fresh listings has returned to normal, the remaining graphs in today's report show that we're still needing more sellers to keep up with enhanced buyer demand.

Fresh Inventory Report

While the last graph showed a month to month comparison of fresh new listings, this one shows cumulative fresh listings through November of each year.

We see that the number of fresh new (existing home) listings is down just under 8% in 2020 when compared to the same period last year. This makes 2020 the middle year of the past seven when ranking years by the number of fresh new listings entering the market.

The housing market started the year with too few homes for sale, so the reduction in fresh listings, coupled with heightened demand, has pushed prices higher and created pent-up demand for homes.

While this might seem like "good news" for sellers as their homes are now worth more, you also have to remember that most sellers are going to be buying another home in the same market (with the same soaring prices).

The fact that fresh listings are down nearly 8% can be softened by the fact that this year is not the lowest one shown in the graph. There have been more fresh existing home sellers in 2020 than there were in 2015, 2016, and 2017.

Of course, the existing home sales market does not stand alone. We also need to examine what the builders have been doing.

Surge In New Construction

Similar to the previous graph that showed fresh listings for the existing homes market, the following graph shows freshly listed new construction homes.

Homebuilders have received our message, they are building more homes. Unfortunately, they are not covering the cap between supply and demand.

Back in the 1990s, builders were bringing more than 1,000 new homes per year to the market. Right now, with a large shortage of homes, they should be building about 1,500 per year and monitoring the supply and demand numbers to ensure that they're not building too many at any given price point.

This means that builders missed an opportunity to sell an additional 600 to 900 homes in 2020 (which is more new homes than actually sold, meaning builders produced less than one-half of the homes that the market would bear). The void that these missing homes did not fill will only disfigure our housing market further in 2021.

To get the global view of the supply side of our market, we combine new homes with used homes which produces the following graph detailing the total number of fresh new listings that have entered the market through November.

Fresh New Listings In Tallahassee

This graph reveals that the combination of builder homes and existing homes has propelled 2020 to the 3rd-best year (of the past 7 years) for new inventory. Remember, today's sky-high demand has created optimal market conditions for sellers.

Despite this influx of new homes, the relative supply of homes for sale has fallen even lower. So what does that mean?

The Relative Supply Of Homes For Sale In Tallahassee

This table measures the supply of homes for sale, relative to the current rate of demand. The resulting number for each area and price-range is measured in "months of supply," and what makes the market balanced is a measure of 6.0.

When the relative supply drops below 6 months of supply, we call this a seller's market as there are more buyers than sellers. When the numbers rise above 6, we refer to that as a buyer's market, as there are more sellers than buyers. Red shaded areas reveal a seller's market condition.

The table clearly shows that the supply of homes for sale, relative to the current hot rate of demand, is lower than ever. Even with more new homes and more existing homes, the growth of the buyer pool has reduced the months of supply of homes for sale.

For every buyer that closed on a home in November, there was more than one buyer that missed out on the chance to buy a home. The closings would have been more than double the rate closed had there been more available listings.

We need builders to step up and produce inventory in the areas and price ranges shaded in red if they are capable. Obviously, we're not going to see a builder bring in new units under $100K in NE Tallahassee, but there are a lot of areas here that should be pursued.

If I were a builder and wanted to ensure that I did not build homes that the market does not need, I would look at the red-shaded areas with a value below 4 months of supply. The market is demanding these homes, why not build and sell them?

If you are a local home builder who would like analytical guidance on where and what to build, I’m happy to help, just give me a call.

For non-builders, you should know that this is the hottest seller's market ever, so if you've been thinking about moving, it's time to act.

I believe there remains a small group of homeowners who have been "sitting on the fence," unsure about selling their homes during the pandemic. This was a very large group of people back in April, but it is significantly smaller today.

Anybody left remaining can still enjoy the strongest seller's market ever recorded in Tallahassee, but understand that time is working against you.

Right now, mortgage interest rates are low and you have sky-high demand for your home. But when mortgage interest rates begin to rise, demand will soften in the middle of the market, and nearly stop at the top of the market.

Rising mortgage interest rates will not reduce the value of your home, but it will increase your monthly payment on the home you buy next.

If you plan on buying a home after you sell your current one, take advantage of low mortgage interest rates, or just take advantage of the strong demand that low rates have created.

Don't be the one among your group of friends who in the future says, "you know, I should have taken advantage of those mortgage interest rates back in 2020 when they were so low!"

When moving to, in, or from Tallahassee, you will fare better if you work with a local expert. We are here to help. If you have further questions on the Tallahassee real estate market, you can leave a comment below, give us a call at (850) 366-8917, or drop us a note and we'll give you the local information needed to ensure a successful, smooth transaction.

As a local born and raised in Tallahassee with a focus on customer service, I promise you'll find great success when working with Joe Manausa Real Estate, just as have our past customers. You can read thousands of their reviews reported on Google, Facebook and Zillow right here: Real Estate Agent Reviews Tallahassee.

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