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Low Inventory of Single Family Homes Generates Rise in New Construction

New Home Under Construction, by Nova Homes of South Florida, Naples, Florida

Everyone agrees the U.S. housing market is being squeezed by low inventory. What they don’t agree on is why.

As home inventory sits near post-recession lows, there are many hypotheses on why there are so few homes for sale today. Here are the five leading theories: (1) investors bought up too many foreclosures during the bust and are hording them as rentals, (2) rising prices have made buying a home unaffordable, (3) owners don’t want to sell if they don’t think they can buy another home, (4) too many home-owning boomers can’t or don’t want to move, and (5) owners who want to trade up can’t find an affordable home at the next level.

To date, these educated guesses have primarily been tested in isolation through simple correlations with inventory, with little or no regard to analyzing what their impact is relative to other factors. When you wear statistical blinders, you run the risk of ignoring potentially more impactful factors when you’re trying to identify the cause of a problem. To be fair, we’re just as guilty as anyone of looking at possible reasons for low inventory in in isolation when we looked at rising home values and a widening price gap. From a study by Trulia.com

The surprising news? Homebuilding’s impact – is by far and away the biggest influence when it comes to inventory woes, outweighing other explanations by a large margin. Across the 100 largest metros, our findings show that:

  • New home construction is strongly related to inventory. Every one percentage point increase in a market’s housing stock between 2010 and 2016 is, on average, correlated with inventory that is approximately 13% higher.

  • Investor ownership is tied to lower inventory. Every one percentage point increase in the housing stock owned by investors in a market is, on average, correlated with inventory that is 2.8% lower.

  • Older households – by hanging on to their homes – aren’t necessarily driving down inventory, at least not yet. Every one percentage point increase in the housing stock owned by those aged 55 and over is, on average, correlated with inventory that is actually 3.6% higher.

Nova Homes of South Florida is building custom homes in Southwest Florida's premier cities, Naples and Marco Island.

In addition, they are busy building in Naples' favorite acreage community, Golden Gate Estates, where lots range form 1.14 acres to over 5 acres. Custom homes are priced from the $200s to over $2 million. For more information please call, 239.307.6116 or visit www.novahomesbuilder.com.

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