Why is housing inventory so low?

There has been a great deal of discussion regarding the consistently low housing inventory levels throughout the nation. Very little, however, has been written about the reasons why inventory levels are so low, especially following the economic disruption of 2008-2011.

Understanding the why can be helpful in predicting how these factors might influence longer-term supply levels and future appreciation potential. This knowledge might also shed light on why inventory might remain constrained over the long run.

In the second half of 2011 we began to see an acceleration in the decline of inventory levels nationally, and since that time the available housing inventory has continued to remain historically low. The graph (figure 1) below highlights the continuous low-inventory environment.

Inman Inventory chart 1

Why is this so? There are numerous conditions that have contributed to this phenomenon and bundled together have created an inventory control dynamic that, as prices rise, only serves to limit the number of homes available for sale.

Capital gains exclusion on primary residence:

Prior to May 7, 1997, the only way you could avoid paying taxes on your home-sale gain was to use the funds to buy another, equal or more-expensive house within two years. I recall my father being motivated by a “move up” mentality. Every few years, he would sell our existing home for a bigger, more expensive property. He would explain to us that he was using tax-free money or “playing with the house’s chips” to leverage into a bigger home that only “someday” he would owe capital gains on. By leveraging his gains, he contributed to the health of the local real estate market. This dynamic created a steady supply and demand equilibrium not only in our local market, but in markets throughout the country.

When he turned 55, another option became available. He could take a once-in-a-lifetime tax exemption of up to $125,000 in capital gains. However, when the Taxpayer Relief Act of 1997 became law, the rollover or once-in-a-lifetime options were replaced with the current per-sale exclusion amounts.

The Taxpayer Relief Act allows homeowners to take a $250,000 (for singles) or a $500,000 (for married couples) capital gains/appreciation exclusion, which could be used under certain conditions every two years. While the Taxpayer Relief Act eased the home-sale tax burden for millions of homeowners, higher-priced real estate markets experienced an unintended outcome: fewer move-up buyers because their gains on their existing home exceeded the $250K/$500K maximum, thereby creating an unwanted tax burden.

This frozen segment of the real estate pipeline has upset the flow of buying and selling activity. The typical move-up buyer has caused a bottleneck by remaining in place thereby reducing available supply to new entrants. The current law does not create the compelling motivation for individuals to continually move up into “bigger and better” higher-priced properties.

In areas such as Silicon Valley, it is not uncommon for homeowners to exceed the $250K/$500K exclusion amounts if they have owned their primary residence for a period of time. Once a homeowner eclipses this threshold, their motivation to sell in order to move up diminishes as the possibility of a financial tax consequence looms. Many move-up buyers have begun their research only to discover they would be subject to capital gains tax on a portion of their gain — another sacrifice they are not willing to make in order to buy that bigger, better property.

Step-up in basis:

This factor is one of the least understood. Mainly because most people do not have large enough real estate gains to care or they are not old enough to begin pondering their longer-term estate plans and how the timing of their home sale might be impacted by capital gains tax exposure.

For couples, upon the death of one spouse the tax basis of the ownership interest that belonged to one spouse is stepped up, the tax basis of the entire asset might be stepped up to “Fair Market Value” (FMV).* This means a surviving spouse can potentially sell their property and owe only federal capital gains tax on the property’s appreciation after the death of the spouse, which might drastically reduce the tax consequence of the sale.

It is very likely that a good percentage of longtime married homeowners in the higher-priced areas of the U.S. understand this dynamic and will opt to stay and wait, surprisingly to some, for one or the other to pass away before a move makes practical financial sense.

If so, this would mean that potentially thousands of multimillion-dollar properties with swollen appreciation are being held off the market until an unfortunate family loss occurs at some point down the road.

Sustained low-rate environment:

Given the sustained low interest rate environment, many homeowners and investors have either purchased or have now refinanced and are locked into tremendously low interest rates over the past six years. It is highly unlikely that these homes will be coming up for sale anytime soon as a result of this favorable financing.

Value disruption/reset in 08/09:

In addition to the sustained low interest rate environment and its potential damper on those properties actually coming up for sale anytime during the life of their loans, we should mention the “value disruption” factor that occurred between 2007 and 2010.

A number of areas experienced a complete “reset” of values and in some cases to nearly half their peak values. Buyers purchased properties in these marketplaces at significant discounts from the high point, resulting in additional “frozen inventory.”

If you combine the sustained low interest rate climate with the thousands of homes purchased at up to 50 percent discounts or more, it’s unreasonable to expect that these homes will be coming up for sale anytime soon.

In addition, an unprecedented number of institutional investors entered the residential real estate market acquiring large pools and blocks of properties. This inventory is now also frozen and held.

Values not at peak levels across the country:

In some regional areas sales prices have reached or even surpassed the peak levels in 2007. However, this not a national phenomenon; some cities and regions across the U.S. are still below the historical highs of the mid-2000s. Until prices reach peak levels across the board these homeowners won’t be listing their homes for sale.

Sense that values will continue to climb:  

Additionally, there is the current mentality among some homeowners that home values will continue to rise. Very similar to the mindset of people holding on to a stock because they expect it to rise, people believe their properties will increase over time. Right or wrong, this mindset has become another factor in the tightening of inventory. What typically happens is that once homeowners realize the up cycle has turned, they electively decide or are forced to sell due to job loss or other negative economic pressures. This would result in a significant inventory increase.

Where would I go? Move up:

We have already mentioned a few of the constraints on the move-up buyer. The aforementioned forces feed on each other and further exacerbate the move-up opportunity. Lower inventory begets lower inventory; a downward pressure cycle continues. If one cannot find properties to move up to, they will not list or sell their current homes.

This same dilemma plagues retirees finding limited or no options for retirement communities in their local area. This also limits housing supply on the top end of the market since seniors are not motivated to sell unless they know exactly where they are going.

Stunted new development:  

Over the past seven years (since the beginning of 2008) there has been an unparalleled low level of new housing starts (figure 2). This prolonged decrease in new home development dramatically multiplies the low-inventory gap. To further the dilemma, the start-to-finish build cycle is lengthy, often requiring multiple years to plan, approve, build and market, which slows market momentum. Until the new housing development engine gets moving at an accelerated pace it will continue to have a lingering impact.

Inman Inventory chart 2

These major factors have created this extraordinary nationwide low-inventory environment we are currently experiencing. Given the factors above, inventory will remain low for an extended period of time, the natural solution of which remains unknown.

*This depends/varies by state of residence and ownership.virtual-tour-220601-03-1474443383


Figure 1 & 2 – National Association of Realtors, Lawrence Yun, Ph.D., NAR chief economist, presentation at Residential Real Estate Forum at the 2014 Realtors Conference & Expo in New Orleans, Louisiana, on Nov. 7, 2014. Retrieved from: www.realtor.org

Original Lake Nonian

30410981Local artist Karen McRainey has a love for Disney and pays extra attention to detail. She worked for Disney for 30 years and has lived in Northlake Park for 14 years.After retirement,she found a love for painting.A self taught artist,Karen has been painting for a short 2 years but her artwork shows her dedication and love of the arts.

Karen and her husband Doug moved to Northlake Park from Winter Park in 2002 and they both fell in love for the area and the YMCA “We were the 50th house and now there is 1,100 homes” says Doug McRainey.They both remember the forgotten years of times when they could see cows in nearby fields and planes flying over head.Karen retired 8 tears ago and took up the art of painting.Doug expressed his thankfulness for their first purchase of a painters kit. Karen began her new career and passion for the art of painting.

Pig Floyd’s heading Lake Nona Way

os-pigfloyd-jpg-20141119Pig Floyd’s Urban Barbakoa is opening a new location in the Lake Nona district.

Lake Nona developer Tavistock Development announced Wednesday it has signed Pig Floyd’s to a spot at Lake Nona Village on Narcoosee Road.

It should open in the first quarter of 2017 in the southeast Orlando community.

The shopping center also includes Panera Bread, Makis Place, Menchie’s Frozen Yogurt and Nona Blue, a restaurant owned by PGA Tour golfer Graeme McDowell.

Florida’s housing median price rises in September

ORLANDO, Fla. – Oct. 20, 2016 – Florida’s housing market had more new listings, higher median prices and fewer all-cash closed sales in September, according to the latest housing data released by Florida Realtors®.

Tight inventory continues to impact the state’s housing market, noted Florida Realtors Chief Economist Brad O’Connor. Closed sales of single-family homes statewide totaled 22,704 last month, slightly down (0.5 percent) from September 2015. Meanwhile, in the townhouse-condo market, statewide closed sales totaled 8,818 last month, down 3.9 percent year-to-year.

“Florida’s economy continues to grow, resulting in improving jobs and incomes for workers across the state,”says 2016 Florida Realtors President Matey H. Veissi, broker and co-owner of Veissi & Associates in Miami. “In turn, that is generating interest from many would-be buyers who are ready to enter the housing market. However, the latest data shows that a continued lack of inventory – especially in the mid-$200,000-and-under range – is affecting those potential homebuyers, leaving them with limited choices and higher prices as a result.”

Home sellers continued to get more of their original asking price at the closing table in September: Sellers of existing single-family homes received 96.2 percent (median percentage) of their original listing price, while those selling townhouse-condo properties received 94.8 percent (median percentage).3_1_Agent_Gary_STRING-v2-1_Page_13-768x432

The statewide median sales price for single-family existing homes last month was $222,500, up 11.3 percent from the previous year, according to data from Florida Realtors research department in partnership with local Realtor boards/associations. The Statewide median price for townhouse-condo properties in September was $160,000, up 6.7 percent over the year-ago figure.

In September, statewide median sales prices for both single-family homes and townhouse-condo properties rose year-over-year for the 58th month in a row, Veissi notes. The median is the midpoint: half the homes sold for more, half for less.

According To the National Association of Realtors, the national median sales price for existing single-family homes in August 2016 was $242,200, up 5.3 percent from the previous year the national median existing condo price was $225,100.In California, the statewide median sales price for single-family existing homes in August was$526,580; in Massachusetts, it was $375,000; in Maryland, it was $278,578; and in New York, it was $257,291.

Closed sales data reflected fewer short sales and cash-only sales in September: Short sales for single-family homes declined 33.8 percent year-to-year, while short sales for townhouse-condo properties dropped 27.2 percent. Closed sales may occur from 30- to 90-plus days after sales contracts are written.

“Even though the number of Florida single-family home sales in September was essentially the same as last year, the composition of this year’s group was quite different – and in a good way,” says Florida Realtors Chief Economist Brad O’Connor. “Distressed sales made up only 10 percent of single family home sales this September, compared to over 19 percent in September 2015. And only 28 percent of sales were all-cash deals this time around, compared to 34 percent last year.

“If our housing markets are going to return to some semblance of what many might term ‘normalcy,’ it’s vital that both of these trends continue.”

Similar to previous months, inventory was at a 4.2-months’ supply in September for single-family homes and at a 5.8-months’ supply for townhouse-condo properties.

According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 3.46 percent in September 2016, which was lower than the 3.89 percent average recorded during the same month a year earlier.

For the full statewide housing activity reports, go to Florida Realtors Research and Statistics on floridarealtors.org. Realtors also have access to local market stats (password protected) on Florida Realtors’ website.

Bulldogs can clinch playoff berth by beating Lake Nona

screen-shot-2014-11-17-at-8-12-17-amBulldogs can clinch playoff berth by beating

St. Cloud and Liberty put on quite a show Saturday in an explosive offensive show that matched two of the county’s best running backs in the Bulldogs’ Charles Robinson and the Liberty’s Markenzy Pierre.
Together, Pierre and Robinson rushed for more more than 500 yards and four touchdowns.
But, it was the passing of St. Cloud’s Colt Smith that made the difference as the Bulldogs (5-1, 3-0) remained undefeated in 7A-6 district play with a 41-26 win over Liberty (2-5, 0-3). The victory puts St. Cloud in the district driver’s seat with East River, a 36-35 winner over Lake Nona last week. Both teams are 3-0.

The Bulldogs can clinch a playoff berth Friday at Gannarelli Field when Lake Nona, 5-2 and 2-1, visits at 7:30 p.m. for a district showdown.

East River comes to St. Cloud on Oct. 28. The Bulldogs can win their second consecutive district championship by winning their next two games.

St. Cloud Coach Bryan Smart said that as challenging as facing Lake Nona will be on Friday, he is glad that his team won’t have to face Pierre, the Liberty senior, again.
“To be honest, I will be more than happy to see Markenzy graduate and take his talents to the next level,” he said.

Pierre, who finished with 292 yards on 33 carries, torched the Bulldogs for 208 of those yards in the first half and his 12-yard touchdown run late in the second period pulled the Chargers to within one at the half, 21-20.

Liberty took a lead in the second half when Pierre ripped off a 51-yard run and then scored from 12 yards out one play putting Liberty up, 26-21.
The lead would be short-lived.

After a 30-yard Seth Johnson kickoff return set them up at midfield, Smith needed just four plays to put the Bulldogs back in front as he hit Johnny Fritz on a 30-yard slant for a touchdown and a 28-26 advantage.

St. Cloud’s defense came up with a pair of stops before Jaylen Mallard and Robinson put the game away with a pair of long touchdowns covering 43 and 65 yards respectively.
Robinson almost matched Pierre’s totals in the game, toting the rock 27 times for 254 yards.
“We’re certainly happy to win the game and stay unbeaten in districts, but it’s never easy playing these guys,” Smart added.  “You are always going to be in for a fight against Liberty.”
Smart said that the Bulldogs can make their season over the next two weeks.

“We are 5-1 and very happy about that, but it all comes down to Friday night at home against a great Lake Nona team,” he said. “We need a great week of preparation for these guys. They are well coached and can score in a hurry. This is a great challenge for us, and we will be ready.”
The Lions have one of the top quarterbacks in Central Florida in senior 6-2, 228-pounder Michael McFarlane He has thrown for 1,482 yards and nine TDs and rushed for 744 yards and 16 touchdowns.

Bulldogs quarterback Colt Smith ranks among Central Florida leaders with 1,538 yards passing and 12 touchdowns. The Bulldogs boast three of the county’s top four receivers in Seth Johnson (36-662, 3 TDs), Johnny Fritz (16-349, 4 TDs) and Brandon Taylor (18-312, 3 TDs). Robinson has rushed for 798 yards and eight touchdowns this season.

Orlando buyers ‘gobbling up inventory like it’s Halloween candy’

The Orlando-Kissimmee-Sanford region continued to show signs of buyer demand last month, as the median list prices went up by 11 percent when compared to a year prior — and up 1 percent from the month prior, Realtor.com reported.

In addition,10 percent fewer active listings are on the market in metro Orlando and homes are on the market for a median of 70 days, which means half of the homes sell faster than that and the other half sell slower, the report showed.

Meanwhile, the U.S. October median list prices were 8 percent higher when compared to a year earlier and homes are on the market for a median of 79 days.

“October is typically thought of as the off-season for home sales, but this year buyers are gobbling up inventory like it’s Halloween candy,” Realtor.com Chief Economist Jonathan Smoke said in a prepared statement. “In fact, the number of homes for sale declined more in October than at any other point this summer, leaving us with 11 percent fewer active listings than a year earlier and the largest monthly inventory drop since July 2015.”screen-shot-2014-11-17-at-8-12-17-am

Take a closer look at the Orlando data in the infographic below and check out more September residential real estate trends on Realtor.com.

See more local residential real estate news from OBJ.

Existing Homes sales rise along with Interest Rates

Separately, Freddie Mac’s Primary Mortgage Market Survey (PMMS) found the 30-year fixed-rate mortgage (FRM) averaged 3.52 percent for the week ending Oct. 20, up from last week when they averaged 3.47 percent. This is the first time since June that the 30-year FRM has risen above 3.5 percent.

Freddie Mac also reported the 15-year FRM this week averaged 2.79 percent, up from last week when they averagedinventory Hsitory

2.76 percent, while the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.85 percent this week, up from last week when it averaged 2.82 percent.

“This month, mortgage rates seem to be catching up to Treasury yields and returning to pre-Brexit levels,” said Sean Becketti, chief economist at Freddie Mac.

“Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in,” said NAR Chief Economist Lawrence Yun. “Unfortunately, there won’t be much relief from new home construction, which continues to be grossly inadequate in relation to demand. There’s hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring. The market fundamentals-primarily consistent job gains and affordable mortgage rates-are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate.”


First look at 2017 real estate market

ORLANDO,Floridamoney – Oct. 19, 2016 – The 2017 home buying season will be see a large increase in first-time homebuyers, according to realtor.com’s latest Active Home Shopper Report, and an increased demand for suburban homes. However, buyers will also face greater affordability challenges.

The study, based on September survey data of active shoppers on realtor.com, provides insight into future home buying trends in 2017 by analyzing responses from consumers who plan to purchase homes in the spring or summer of 2017.

According to the report, the percentage of first-time homebuyers could rise as high as 52 percent of all buyers, and increase from 33 percent in 2016.

But this boost in first-time buyers will also make affordability, downpayments and credit scores a challenge, and those issues could become the market’s top problem next year. Currently, the limited inventory of listings is the top barrier to homeownership.

In general, suburban homes are preferred by 43 percent of first-time homebuyers surveyed, likely due to their desire for safe neighborhoods, privacy and the needs of growing families, according to realtor.com researchers.

Top 5 predictions for 2017

1. First-time homebuyers could make up a majority of 2017 homebuyers
According to the survey, first time homebuyers make up 52 percent of prospective buyers looking to purchase in 2017. Millennials lead the pack with 61 percent of potential first-time buyers under age 35. Top reasons cited by millennials for buying: getting married or moving in with a partner, growing tired of their current living space, and planning to increase family size.

“This represents an ‘Oh, shift’ moment in housing,” says Jonathan Smoke, chief economist for realtor.com. “With so many first-time buyers in the market, competition will be even fiercer next year for affordable starter homes in the suburbs. Those looking to buy may want to consider a winter home purchase in order to avoid bidding wars and higher prices spurred by a potential increase in millennial buyers.”

2. Affordability and mortgage qualifying expected to replace lack of inventory as largest barrier to homeownership
In 2016, 40 percent of home shoppers cited lack of inventory as the largest barrier to homeownership, but realtor.com reports this will potentially shift to affordability and mortgage qualification issues as more first-time home buyers enter the market. Of first time buyers planning to purchase next spring, 37 percent said their largest impediment to homeownership is the downpayment, and 30 percent said finding a house within their budget.

3. Safe neighborhoods, more living space and larger yards top list of key home attributes
Safety, more living space and larger yards as key features is consistent with their top goals of buying: attaining privacy and addressing the needs of their families. A third top objective of first-time buyers is to make a financial investment that will grow over time.

As millennials marry and move in with partners, reasons to purchase are driven by actual or planned growth in their families, and they show strong preference for single-family homes (39 percent) or townhomes (34 percent), and away from multi-family homes (15 percent), condos (10 percent) or mobile homes (2 percent).

4. Competition for the suburbs should heat up
With families and safety on the brain, it’s no surprise that first time homebuyers identified the suburbs as their No. 1 preferred location. In fact, 50 percent of all respondents identified suburban areas as their preferred location. For boomers, their desire for the suburbs can likely be attributed to their desire to be close to family and friends.

Data also show younger homebuyers are more likely than their older counterparts to prefer urban living, the second-most common location preference among millennials after suburbs.

5. Spring and summer will continue to be 2017’s hottest time to buy a house
A majority of all survey respondents were beginning the housing search at the time of the survey and planned to purchase in seven months or longer, indicating spring and summer will continue as the top seasons to buy and sell homes: 73 percent of respondents had been considering homeownership for less than three months and did not expect to purchase a home immediately.

House for sale

Here’s what $6M-plus will get you in Orange County

If you’re looking for a luxury home, here are a few that might catch your eye.IMG_2240screen-shot-2014-11-17-at-8-12-17-am

As of Oct. 13, there are 21 homes listed for sale in Orange County for $6 million and up, with the most expensive coming in at $30 million, according to the Orlando Regional Realtor Association.

Of those, 10 are in Windermere, four are in Winter Park, four are in Orlando and three are in Golden Oak. They range in size from 2,960-20,333 square feet, two to seven bedrooms and two to 12 bathrooms.

Contact us for more information on these homes!


Chicago Real Estate

Dr. Phillips Center has begun bid conversations for second phase

If you haven’t yet heard word about how to get involved in the Dr. Phillips Center for the $203.5 million second phase, those talks are starting now.

The second phase of the arts center’s construction, which includes the 1,700-seat Steinmetz Hall acoustical theater and multiple back facility space, is beginning to consult with businesses interested in getting a piece of the project, Kathy Ramsberger, president and CEO of the Dr. Phillips Center, told Orlando Business Journal. The Orange County Tourist Development Council on Sept. 30 approved giving $45 million in tourist development taxes to the center to help bridge a $55 million funding gap — the final $10 million is expected to come from fundraising and donations.

The next big county hurdle is to get approval from the Orange County board of county commissioners on Nov. 1. That approval would green-light subcontractor bidding within the next two months with a ground breaking in January 2017 and completion by late 2019 or early 2020.

“We are going to begin our communication to the minority- and woman-owned businesses and the Blueprint community based on the [Sept. 30] vote,” she said. “The minute we have [county] approval, the bid packages are ready to go. We already are investing into phase two, we have been funding all the pre-construction. So our construction team is mobilized and ready to move. We are already through much of the permitting/construction review process.”

The construction talks kicked off last week and have the potential to create hundreds of temporary construction jobs and more permanent arts jobs. Once the second phase is complete, the Dr. Phillips Center construction cost will total more than $570.3 million. The first phase opened in late 2014.

The arts center has become a must-finish project for many local leaders. It has added more to the region’s culture, generates $68 million in annual economic impact and was the focal remembrance and gathering point for locals after the deadly Pulse shooting.