Where Did All the Homes Go? A Historic Shortage, and Cities It’s Hitting Hardest

Of all the hyperbolic new benchmarks of the American housing market (Highest-ever national home prices! Fewest-ever days on market! Most expensive teardown shack in history!), there's one key metric that seems to get the least number of blaring headlines: inventory levels. But maybe that should change. The fact is, the number of properties available for sale in the U.S. has reached nearly historic all-time lows. And this might be the main reason why you're having trouble affording a new home.

So we set out to find the metros where the number of homes on the market is shrinking at the fastest rate. And what it all means.

The realtor.com® data team calculated the total amount of residential square footage that has disappeared from the market over the past three years. And because inventory shortages are a heck of a lot tougher to visualize than, say, home prices, we put them into perspective. For example, Minneapolis lost the equivalent in inventory of more than two Malls of America—the largest mall in the nation with 4.9 million square feet—over a three-year period.

Bottom line: The total number of homes for sale is about as low as it's ever been. Inventory listed on realtor.com in the first six months of 2018 is 18.2% lower than the same period in 2015. The sheer number of homes on the market in January 2018 was only 6.2 million, according to U.S. Census—a gigantic drop-off from the 14.3 million total in January 2009. Current inventory levels are comparable with what they were in the early '60s, when the Census started collecting the data and the U.S. had roughly half its current population.

Yikes. The shrinking number of homes available means more bidding wars, bigger price hikes, and less selection. And this isn't something that is limited to a handful of places. Of the 50 largest markets, 39 saw a decrease in inventory over the past three years.

Thank the rebounding economy for the shortage. During the recession, many folks lost their homes to short sales and foreclosures, and many builders went out of business. Then came the recovery and pent-up demand—and not enough homes to meet it.

It's worth noting that inventory is now beginning to rise again, at least in some of the biggest markets, as fewer sellers are underwater these days and many want to cash out while prices are still high. But it's not enough just yet to make a dent in the shortages.

“Buyers have the least amount of options they’ve ever seen before," says Javier Vivas, director of economic research at realtor.com. At the same time, "competition has virtually doubled over the past five years.”

The data team looked at the 50 largest metropolitan statistical areas,* and found the places where the number of homes on the market has dropped the most in the first six months of 2018, compared with the first six months of 2015. Then we calculated the drop in total square footage in each market. We did that by multiplying the drop in total homes in each metro by the average square footage of homes in those areas.

We excluded metros in which fewer than 50% of the listings on realtor.com didn't include square footage. And finally, we limited our ranking to one metro per state.

Now let's show you just what that lack of inventory looks like.

Median list price: $453,000
Decrease in inventory: -55.1%
Drop in square footage on the market: 10,409,000

Lost inventory in Sacramento
Lost inventory in Sacramento

Tony Frenzel

Sacramento burst onto the national scene a few years ago as more folks priced out of the San Francisco Bay Area found a cheaper alternative about two hours northeast. The city played a starring role in last year's Oscar-nominated "Lady Bird," a coming-of-age film where the protagonist laments her dreary life in the Sacramento of the early aughts. But all that's changing now as refugees from San Francisco, where median prices are $898,300, and San Jose, CA, where they're $1.2 million, are moving in and looking for relative bargains.

Now there are plenty of cities seeing influxes of new residents. But the lack of building in Sactown, as it's called, is what earned the city the top spot on our analysis. New construction made up 9.5% of all of the homes listed on realtor.com. But that figure was just 1.9% in Sacramento.

"We have a shortage of skilled [construction] labor," says local appraiser Ryan Lundquist. "And it is really expensive to build in California. There are [high] permit fees and environmental fees."

Median list price: $334,600
Decrease in inventory: -52.2%
Drop in square footage on the market: 17,257,000

Fast-growing employers headquartered in Charlotte, like Bank of America, have kept a steady stream of moving trucks heading for the region. The population of the metro jumped 14% from 2010 to 2017. And all those new faces mean more buyers competing for a dwindling number of homes.

That drop in inventory is equivalent to 12 Bank of America Corporate Centers—the tallest building in Charlotte and where the bank is based. And it would be even worse if it weren't for all of the new construction, particularly subdivisions out in the suburbs.

About 1 in 7 homes in Charlotte is new. They're just not going up fast enough.

Median list price: $260,000
Decrease in inventory: -49.6%
Drop in square footage on the market: 10,726,000

Indiana has long been home to some of the Midwest's best schools, including Notre Dame, Butler, and Purdue. As the economy in the state's capital continues to grow, with pharmaceutical and health insurance companies like Eli Lilly and Co. and Anthem based there, more grads are choosing to stick around. Why not? The housing is still affordable compared with the coasts.

But that means the number of homes on the market is way down. In fact, the total residential square footage lost is equal to almost six Lucas Oil Stadiums, the state-of-the-art, 1.8 million-square-foot venue where the Indianapolis Colts play ball. Ouch.

Median list price: $190,000
Decrease in inventory: -47.1%
Drop in square footage on the market: 2,843,000

Lost inventory in Buffalo
Lost inventory in Buffalo

Tony Frenzel

This former manufacturing town is experiencing a long-delayed resurgence. New restaurants and condo buildings are popping up downtown. People are kayaking on the Buffalo River, an industrial waterway that has since been restored. And more importantly, some folks are moving back to their hometown to score some sweet real estate deals.

"The narrative for a long time has been [that the] millennial generation are living in their parents' basements ... but the reality is they're the majority of my buyers," says local real estate agent Joe Saccone, of Keller Williams Realty. "Some of the hottest real estate in our region has been in the city proper, the walkable neighborhoods."

But the inventory levels might start to come back up soon. More buyers are getting sick of losing in multiple-offer bids and are starting to back off a bit—leading to fewer residences flying off the market, Saccone says.

Median list price: $248,500
Decrease in inventory: -46.4%
Drop in square footage on the market: 16,299,000

Detroit was already reeling from the loss of auto manufacturing jobs when the Great Recession hit. The blow resulted in corporate giants like General Motors filing for bankruptcy, widespread foreclosures, and vacant, boarded-up homes for as far as the eye could see in many neighborhoods. Desperate homeowners were selling their abodes for practically nothing in some areas.

Fast forward to 2018, and the city is undergoing a resurgence with a revitalized downtown and industrial sites being converted into condos and office space. That's snaring more buyers. The crash caused a huge buildup in inventory, so the spike in buyers is causing the number of homes on the market to drop.

In just the first six months of 2018, the amount of square footage lost in the metro was equal to 18 Little Caesars Arenas. The arena, home to the Detroit Red Wings and the Detroit Pistons, clocks in at 885,000 square feet.

Median list price: $337,100
Decrease in inventory: -41.3%
Drop in square footage on the market:12,688,000

Lost inventory in Minneapolis
Lost inventory in Minneapolis

Tony Frenzel

Last year, Kristen Schwartz, 49, and her husband traveled from San Francisco to Minneapolis, where their oldest son was in graduate school. They fell in love with the Midwestern city—and its real estate prices. So they sold their 985-square-foot home in San Francisco for about $1.3 million, and bought a three-story, 2,600-square-foot residence in Minneapolis for $500,000.

"We were able to get this big, beautiful home," says Schwartz. She was also able to get their twin boys into good public schools—a challenge in the Bay Area.

Newcomers like Schwartz have been driving down inventory and pushing up prices. Many millennials have been moving to the city and buying condos in downtown priced around $250,000.

"We are a darn bargain economically," says Chris Lindgren, a real estate agent at Keller Williams Realty Integrity Lakes. "We have a wonderful culture, great restaurants, several nice rivers. There's an amazing amount to do outdoors."

Median list price: $250,000
Decrease in inventory: -37.3%
Drop in square footage on the market: 4,953,000

Milwaukee is a college town that boasts 13 Fortune 1000 companies in the region, including Harley-Davidson, Northwestern Mutual, and auto parts maker Johnson Controls. That's more than more fashionable metros such as Nashville, TN, and Miami. And that combo of college grads and good-paying jobs means that plenty of locals are able to buy homes of their own.

The drop in inventory here is equivalent to losing more than four Northwestern Mutual Tower and Commons buildings, a 1.1 million-square-foot building in the city.

Median list price: $249,500
Decrease in inventory: -36.8%
Drop in square footage on the market: 3,454,000

Lost inventory in Louisville
Lost inventory in Louisville

Tony Frenzel

Every spring, Louisville grabs the national spotlight as folks tune in to the Kentucky Derby to watch horses run the 1-mile oval track at Churchill Downs. But horse racing isn't the biggest gamble here: More people are betting big on the housing market, and buying homes at near record levels. That's causing inventory to drop off big-time.

Everything is selling here, from three-bedroom homes in suburbs like Crestwood priced around $300,000 to historic homes built around 1900 in walkable downtown neighborhoods. Heck, even farmhouses out in the yonder where you can drink a glass of Pappy Van Winkle bourbon on your front porch are selling fast.

Median list price: $311,500
Decrease in inventory: -36.8%
Drop in square footage on the market: 4,192,000

The job market in the capital of Virginia is on a tear, and so are home prices—up 7% in August year over year, after a 9% jump the year prior. And around 1 in 3 homes in Richmond end with multiple offers.

The amount of lost inventory in Richmond is equivalent to more than eight James Monroe Buildings, the tallest building in the city. (It's a 29-story office tower with about 500,000 square feet of space.)

The housing shortage would be even lower if home builders weren't putting up new homes at a frantic pace. New construction accounts for 27.6% of homes in Richmond for August.

Median list price: $552,600
Decrease in inventory: -35.1%
Drop in square footage on the market: 4,687,000

Lost inventory in Seattle
Lost inventory in Seattle

Tony Frenzel

Seattle is a well-known success story: Big tech companies such as Amazon and Microsoft supercharged the region and unleashed hordes of well-paid tech workers into the market. But combine that endless stream of new residents with the city's geographic challenges (much of the city is surrounded by water, which limits new building) and strict zoning laws, and you wind up with chronic shortages of housing.

Inventory was already tight in 2015, and has fallen even more since then. More folks are scooping up homes in the suburbs and smaller, nearby cities like Tacoma, where bargain hunters can find single-family homes priced between $350,000 to $500,000.

But more homes could be starting to go up for sale, says Steve Sloboda, a broker at Windermere Real Estate in the Seattle region. He's seeing more homes bought at the peak of the market, in 2006, come out from underwater. That means their owners can sell them now without losing money on the deal. Finally.

A metropolitan statistical area is a designation that includes the urban core of a city and surrounding smaller towns and cities.

https://www.realtor.com/news/trends/historic-housing-shortage-and-cities-it-is-hitting-hardest/

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