Two phenomena are causing people to stay in their homes longer than ever before. The first, according to First American Financial Corporation, is that homeowners are more than reluctant to trade their historically low, cheap mortgages for more expensive ones. The second is that seniors want to “age in place” (in their own place/home) due to the positives of healthier lifestyles and more advanced medical technologies.
In just one year, tenure in homes rose 10% y/y to 11.3 years, according to First American. Compare what has happened regarding home tenure in just 15 years. People stayed in their same homes for just 5 years pre-2007. Tenure increased to 7 years between 2008 and 2016. And with 2019’s home tenure now at 11.3 years, we are living in “…an unprecedented homebody era,” according to Mark Fleming, First American’s chief economist.
The impact of this homebody era on the housing market is also unprecedented. First American’s May 2019 Potential Home Sales Model indicates that currently, the potential sales of existing homes is an eye-popping -22% below the pre-recession peak of market potential in March 2004.
Even with a positive gain of 366,000 potential home sales due to rising inventories particularly of unsold homes languishing on the market, the loss of 446,000 potential sales due to rising home tenure overshadows any such gains. This “near gridlock,” as a recent story in the Chicago Tribune called it, is keeping some 1.6M homes off the national market as the Tribune cited a Freddie Mac analysis.
Looking ahead, more than 50% of all homes are owned by Boomers and Silent Generation members who will eventually age out of homeownership. However, in the meantime, the housing supply remains tight. Fleming said, “You can’t buy what is not for sale and the market potential for sales is lower because of what is not for sale.”
Fleming continued. “Even as mortgage rates have decreased and household incomes have increased, the market is underperforming compared to its potential from even a year ago…despite all the positive (loosened credit standards, more house buying power with lower rates, growth in household formation) the market potential for home sales remains nearly 80,000 units below the level of a year ago.”
To help remedy the housing shortage, some activists are calling for changes to zoning laws. Others, such as Lawrence Yun, chief economist with NAR, are calling for more home construction. “More new homes need to be built, otherwise, we risk worsening the housing shortage and an increasingly number of middle-class families will be unable to achieve homeownership.”