Homebuilders can't build fast enough and homeowners won't sell until mortgage rates go down more. Is there any way to alleviate the housing shortage now in the for-sale market?
Yes, one expert said. Incentivize mom-and-pop landlords to sell their rental properties.
"What really needs to happen is, can we find a tax incentive to unleash some of the inventory held by mom-and-pop real estate investors?" National Association of Realtors chief economist Lawrence Yun said on Yahoo Finance Live (video above). Yun is one of the experts who contributed to Yahoo Finance's Chartbook that illustrates the market and economy right now; his chart documented the for-sale housing shortage.
These smaller landlords who own 10 or fewer properties oversee around 20.5 million rental properties across the country, according to a report by JPMorgan Chase. They own 41% of the 50 million residential stock available in the US.
"If we can get even just 1% of inventory onto the market through tax incentives, essentially a reduction in capital gains tax," Yun said, "...that will spur more supply immediately, and that will help the housing market and the broader economy."
On the other side, investors are making it harder for first-time buyers to get what inventory is left.
Investors made up 24% of all US home purchase activity in the second quarter, according to John Burns Research and Consulting. Mom-and-pop investors purchased about 64 times the number of homes that institutions did during the period.
But the real culprit behind the housing shortfall is mortgage rates. Homeowners are reluctant to sell because they don’t want to give up their current low mortgage rate for the prevailing rate that is twice as high. The lacking supply has also helped to keep home prices from falling, adding to the affordability woes buyers are facing.
In June — the latest data available — the share of homes available for sale shrunk to a historic low, leaving potential buyers with fewer options, the National Association of Realtors reported. That, in turn, choked off sales activity. About 4.16 million existing homes sold that month, a 3.3% drop from the month before and the slowest sales pace for June since 2009.
At the same time, prices are rising after briefly softening last year.
A home price index from Black Knight, a mortgage tech and data provider, showed that almost every major market experienced price growth month over month in June on a seasonally adjusted basis. Of the 50 markets tracked, only two metros saw price declines.
That's led to a record share of folks who think it's a bad time to buy a house — largely because of inventory and affordability issues.
"The big change is either the tax incentive or if the Fed decides to stop raising interest rates. Because one of the reasons for the low supply is that homeowners do not want to trade away their low interest rate for a much higher interest rate as they're making their residential move," Yun said. "But if the interest rate begins to come down a bit, at least the cost of the move becomes less painful than before."
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