Across Northern Colorado, and in many markets across the country, both buyers and sellers are contending with the ramifications of slim housing inventory. But why has it come to this? To find the answer, we need to review a combination of factors–both economic and legislative–that have influenced the shape of today’s market conditions.
A recent analysis that appeared on Inman.com, a real estate news service, provided the following set of reasons:
Capital gains exclusion on primary residence. Before 1997, home sellers could only avoid capital gains taxes on the sale by purchasing another house of equal or greater value. In short, sellers were motivated to move up, providing a built-in supply-and-demand dynamic. But with the Taxpayer Relief Act of 1997, sellers were allowed a capital gains/appreciation exclusion ($250,000 for singles, and $500,000 for married couples).
Sustained environment of low interest rates. Since many homeowners and investors have either purchased or recently refinanced to take advantage of low rates, they find themselves “locked in” to their favorable rates. Consequently, these owners are unlikely to sell anytime soon.
Value disruption from the recession. In many markets, values plunged from 2007-2010. People and investors who bought homes at a discount are inclined to hold on to the properties and take advantage of their good fortune.
Expectation for values to climb. Much like holding on to a stock, expecting the price will rise, homeowners believe their property values are on the upswing and want to ride the wave. Consequently, more homes are “frozen” out of inventory.
Where would I go? Low inventory begets low inventory. For instance, seniors who might be inclined to sell after retirement are encountering limited options in their communities, and decide to stay put.
Stunted development. Home builders put on the brakes in 2008, and are slowly ramping back up to pre-recession levels.
Developer liability. In Colorado, condominium developers have a greater exposure to lawsuits due to the state’s construction defects law. Consequently, fewer condominiums–often starter homes for first-time buyer–are available in the market.