More choose to stay where they are and renovate, making it harder for renters to enter market
Despite rising home prices and a growing economy, U.S. homeowners’ mobility rate is stuck at a 30-year low as many opt to stay put rather than move to pursue job opportunities or trade up for more space.
The median duration of owners in their homes in 2017 was 10 years, according to data soon to be released by the National Association of Realtors. That matched last year’s duration, which, along with 2014, was the highest level since the NAR started tracking the data in 1985.
Americans aren’t moving in part because inventory levels have fallen near multidecade lows and home prices have risen to records. Many homeowners are choosing to stay and renovate, in turn making it more difficult for renters to enter the market.
The lack of inventory “is like not having enough oil in your car and your gears slowly come to a grind,” said Sam Khater, deputy chief economist at data company CoreLogic .
The stagnant housing market means people aren’t moving to places where they can get better jobs, or within their own metropolitan area to get closer to their jobs or better schools for their children.
Overall, there is about four months of supply of homes on the market at all price points, much less than the six months economists say is normal. The crunch is most acute for midprice homes, with only about three months of supply, according to CoreLogic.
Mr. Khater said he and his wife have decided to stay and renovate their home in the suburbs of Washington, D.C., rather than move to a bigger place with a backyard for their daughter, because he can’t find anything for less than $1 million that would fit their needs.
Housing starts fell 4.7% in September, the Commerce Department said, and remain about 40% below the 50-year average, which is unusual considering the economy and job markets are expanding strongly. In September, sales of previously owned homes declined on an annual basis for the first time since July 2016 as the shortage of homes continues to take a toll on the housing market.
The lack of new-home construction has helped create a bottleneck in the market in which owners of starter homes aren’t trading up to newly built homes, which tend to be pricier, in turn creating a squeeze for millennial renters looking to get into the market. Economists said baby boomers also aren’t in a hurry to trade in the dream homes they moved into in middle age for condominiums or senior living communities because many are staying healthy longer or want to remain near their children.
Those factors have led Americans to pour record sums into home renovations. Spending, already at record levels, is expected to continue accelerating, according to data released this month by Harvard University’s Joint Center for Housing Studies. Total outlays on renovations are expected to grow 7.7% annually in the third quarter of 2018, up from 6.4% in the third quarter of this year.
Jennifer Pichler bought her house 11 years ago when she and her husband had two infants. Now that they have three growing children, they are ready for a bigger home—but they have no plans to move.
The Pichlers want to stay in the same area in Cincinnati, close to downtown and in their children’s school district. Prices have appreciated rapidly in their neighborhood, so they know they can get more than what they paid. Now the problem is that there aren’t many homes on the market, and the ones that are have gotten out of reach.
“We could sell it, yes,” said Ms. Pichler, a stay-at-home mom who worked in marketing. “But where would we go?”
There are about 22% fewer homes on the market in the Cincinnati metro area than there were a year ago, according to Zillow.
Mobility rates, which were largely stable from the 1950s through the late 1970s, have been in slow decline for the better part of three decades, according to Mr. Khater of CoreLogic. “It’s a bit of a mystery as to why,” he said, referring to the long-term trend.
One reason appears to be a growing disparity between home prices in the richest states versus those in the poorest ones, fueled by increasing land-use regulations that make it more difficult to build in wealthier places, according to recent research by Daniel Shoag, an associate professor of public policy at Harvard University and Case Western Reserve University, and Peter Ganong, an assistant professor at the University of Chicago.
Still, economists said they would have expected at least a temporary uptick as the housing and job markets recovered, and people are more likely to move in search of better job opportunities or because their homes are worth more so they can afford to upgrade.
“This is supposed to be an economic recovery, where people are supposed to [trade up] their homes,” said Sanjiv Das, CEO of Caliber Home Loans Inc., the eighth-largest mortgage lender in the U.S. by loan volume, according to Inside Mortgage Finance. “And we haven’t seen that.”
Another reason for the undersupply: Investors snapped up single-family homes during the downturn and converted them to rentals. While some industry observers thought they would sell them as soon as home prices recovered, a booming rental market has meant that most have held on to them. An analysis by Trulia found that every one percentage point increase in the housing stock owned by investors in a market was correlated with inventory levels that are 2.8% lower.
More difficult to measure, but also apparent, is that Americans have a more cautious attitude toward homeownership in the wake of the housing crash that has made many unwilling to gamble on buying bigger, more expensive homes.
“There’s that feeling that ‘We survived this last downturn, we’re maybe halfway to getting this home paid off, why should we take on another mountain of debt just to get into this bigger home?’” said Daren Blomquist, senior vice president at the housing-research firm Attom Data Solutions.
Mr. Blomquist, who lives in southern California, recently went through that same thought process with his wife, when they considered but ultimately decided not to get a bigger place for their three children. “It’s easy to sell,” he said. “The challenge is finding a new home.”
Jacob and Stacy Loftin in Somerville, N.J., considered moving to a new home that might be less work than their century-old colonial, but were put off by the ferocity of the competition. Some of the houses that did go on the market were snapped up by investment firms that have pushed up prices.
“I think maybe we missed the window to move if we’re going to move to a house within our budget,” Mr. Loftin said.
Instead they added an extra half-bathroom, built a small deck and redid their kitchen, after deciding the renovation would be easier to stomach than a move.
“I’m always a little anxious about buying what you don’t know,” said Mr. Loftin, an operations administrator at an insurance company. “You can never really trust what you’re getting.”
The Wall Street Journal