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Normally, one would expect to see housing starts taking off. Construction has typically provided a strong economic driver coming out of a recession, but such has not been the case this time. During the Great Recession a number of smaller builders went bankrupt, and banks have significantly ratcheted up their credit requirements relative to where they were a few years ago. Large builders with access to a variety of financial sources, including Wall Street, can still obtain money for financing construction. However, the small builder—possibly 5, 12, or 20 houses a year—if still in business, has at best, a much more restricted access to the credit markets. Typically, small builders have accounted for approximately half of the new homes coming onto the market—and a major part of that supply is now gone.

What does the current market situation mean for housing market participants? In general, consumers can expect to find limited inventories of available homes, a tendency for rising prices, and continued competition for the available supply. Having a REALTOR® to provide guidance through the home-buying process is important. Although additional supply will be coming onto the market as builders continue to ramp up, additional buyers—particularly from the millennial generation who have put off home purchases in some cases—are also likely to appear as they form families and find better jobs. There have been significant price rises up to this point, but prices are likely to increase at a lower rate in the future, simply because previous rises are not sustainable from an income point of view. In addition, financial institutions are in a strongly risk averse position and are likely to make sure that appraisals continue to focus on current market realities.

For builders, this can be the “best of times” if credit is available and they tailor the product to meet changing consumer demands. For example, there appears to be a movement away from the four-bedroom suburban home to an urban oriented townhouse offering access to various amenities.

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