The ‘Homebodies’ Factor in Housing Supply, Sales

Homeowner tenure–the time a typical homeowner lives in a home before moving–has more than doubled in the years following the recession and has increased by 10 percent just from a year ago, said First American Financial Corp., Santa Ana, Calif.

And this, said First American Chief Economist Mark Fleming, explains why housing supply is tight and is currently one of the main drivers of low existing home sales.

“It’s hard to buy what’s not for sale,” Fleming said.

The report said in the six years since house prices hit their trough and the housing market bottomed out, house prices have recovered nationally and reached historic highs. However, the price recovery has most recently been driven by a supply shortage.

One factor for the high prices, Fleming said, is that availability of homes for sale is running near historic lows because single-family housing construction remains low and home builders have not built enough new homes to keep up with overall demand.

More importantly, Fleming said, existing homeowners have been staying in their homes longer. For the three to four years before the housing market crash in 2007, the median length of time someone lived in their home was relatively stable, hovering around four years. Tenure jumped to seven years during the aftermath of the crash between 2008 and 2016; most recent data (December) show the median length of time someone lives in their home has increased by 10 percent compared to a year ago. The long-term historical average is six years.

“This begs the questions, what drives homeowner tenure in the U.S., and have we become a land of homebodies?” Fleming said.

The report identifies several key factors driving longer homeownership rates:

—Mortgage rates. “Those who bought their homes 10 years ago likely will have refinanced into a 3.5 percent mortgage, making the most recent 4.6 percent 30-year, fixed-rate mortgage unattractive,” Fleming said. “This is commonly referred to as the rate lock-in effect.”

—Supply–or lack thereof. “Lack of supply and the fear of not being able to find something to buy keeps many homeowners from selling,” Fleming said. As the supply of homes for sale increases, the risk of not being able to find something to buy falls and homeowners become more confident in the decision to sell. Today’s significant lack of supply is preventing homeowners from selling and driving tenure length up.”

—Credit standards. “Because a homeowner’s decision to sell is driven by their decision and ability to buy, tighter credit standards increase tenure length,” Fleming said. “When homeowners are less likely to receive mortgages for a new home, they are more likely to stay in their current home.”

—Foreclosure rates. Foreclosures reduce homeowner tenure, as foreclosures force homeowners to move, possibly before they would otherwise want to.

—Home equity. As a homeowner gains equity in their home, they are more likely to consider using the equity to purchase a larger or more attractive home. However, if equity is low, homeowners are likely to remain “equity locked-in” to their home. “Even though Americans currently have the highest amount of tappable equity in history, the other drivers of tenure length are proving more influential in the homeowner’s decision to sell,” Fleming said.

Fleming added while it is unlikely the influences that are currently driving tenure higher will change in the near term, more than half of all existing-homes are owned by baby boomers and the silent generation, who will eventually age out of homeownership.

And when that occurs, Fleming said, “the problem may not be a lack of supply, but the exact opposite.”