Before diving into my predictions for the year, I want to lay some groundwork by discussing two key factors that will shape the market: mortgage interest rates and housing inventory.
In my previous post, I explored the elements that influence mortgage interest rates. Now, let's delve into the significant reasons behind our current low housing inventory. In my next post, I'll share my predictions for the year.
You've likely heard the saying that real estate, much like politics, is very local. While national trends do play a role, the most impactful drivers are often local. My observations will focus on Southern Frederick County, Maryland, where I conduct most of my business.
Frederick County is a popular and
desirable place to live. It has been growing steadily, is business-friendly,
has a reasonably low crime rate, and boasts high-ranking schools. So, why is
there a lower housing inventory in Frederick County, MD? Here are some factors
contributing to this situation:
- Underbuilding: Despite several new subdivisions being built over the past decade,
the construction of new homes may not be keeping pace with demand. This
has contributed to a deficit in the housing supply.
- High Demand: Frederick County's desirable location, excellent schools, and high
quality of life drive strong demand for homes. This demand often exceeds
the available supply, leading to lower inventory levels.
- Homeowner Reluctance to Sell: Many homeowners are hesitant to sell their
properties for several reasons:
- High Interest Rates: Many people
refinanced their home loans when interest rates were very low between
2019 and 2021. Buying a new home at a current rate of 6.5%, compared to
their existing 3% loan, would make the purchase more expensive.
Additionally, some homeowners may be waiting for even higher prices
before deciding to sell.
- Low Inventory: This creates a circular problem. Homeowners are
reluctant to sell because they worry they won't find a suitable new home
or can't afford to own two homes simultaneously while working out their
loans, even though there are strategies to address this issue.
- Seniors Aging in Place: Over the past
15 to 20 years, it has become easier for older adults
Homeowner Equity by Generation
to remain in their homes longer. They are in better health, have new ways of managing infirmities, and have often paid off their homes, with no desire to take on a new loan. Unfortunately, they hold a majority of home ownership equity. Nationally, the Silent and Baby Boomer generations hold about 51% of total housing equity. Assuming this is roughly true for Frederick County, a significant percentage of properties are effectively off the market. - Economic Stability: Frederick County's relatively stable local
economy, with steady job growth and low unemployment rates, encourages
people to stay in their homes longer, reducing the number of properties
available for sale.
- Tighter Lending Standards: Stricter lending standards have resulted in fewer distressed properties, such as foreclosures, entering the market. This has also contributed to the lower inventory, as there are fewer homes being sold under duress.
Understanding the factors behind low housing inventory is crucial for anyone involved in the real estate market. By recognizing the impact of underbuilding, high demand, homeowner reluctance to sell, economic stability, and tighter lending standards, we can better navigate the challenges and opportunities that lie ahead. Stay tuned for my next post, where I will share my predictions for the real estate market in the coming year. Together, we can make informed decisions and achieve our goals in this dynamic market.
If you'd like to discuss what's best for you, feel free to call or text me at 301-873-2106 or email me at BReynolds@LNF.com. We can have an open discussion about your circumstances so you can make informed decisions. Remember, I don't do hard sales or pressure you into action—buying or selling your home is entirely up to you.
As always, I'm here to assist with your real estate needs, even if your purchase or sale is some time away. The better prepared you are, the less stressful the process will be. Finally, if you know anyone looking to buy or sell, your referral would be greatly appreciated.
Let's get started. Contact
me at 301-873-2106 or email me at BReynolds@LNF.com.
