In short supply: Inventory shortage drives Nevada County’s tight housing market
It’s the basic economic principle of supply and demand that guides the Nevada County housing market, said Greg Bulanti, the president of the Nevada County Association of Realtors.
Right now, “there’s way more demand than there is supply,” Bulanti said. “And what happens in economic theory when that occurs? Prices go up, because they can.”
That’s real estate in Nevada County in a nutshell, Bulanti said. A widespread lack of inventory over the first three months of 2016 meant area home buyers forked over more money to purchase a property than buyers in years past — if they could find a for-sale home at all, that is.
“There just isn’t enough inventory, that’s the biggest problem we have right now,” Bulanti said, adding that’s leading to multiple buyers placing offers on available homes. “We’re seeing things we haven’t seen in a few years, no question about it.”
Realtors gauge housing supply by looking at the number of months it would take to sell the current for-sale homes in a market. Bulanti said Nevada County is currently at about a four-month supply of homes; economists generally classify anything under a six month housing supply as a seller’s market.
In the first quarter of 2016, 243 homes were sold in Nevada County, according to statistics from the local association of realtors; the average sales price of those homes was $376,260, and the median price was $340,000.
That’s fewer units — at higher average and median prices — than sold over the same time period in the last two years, according to the data. In the first quarter of 2015, 280 units were sold, with an average sales price of $334,941 and a median price of $314,000. During the first three months of 2014, 258 homes were sold, with an average sales price of $333,681 and a median price of $294,750.
With inventory in demand, there’s no better time to put a home on the market, Bulanti said. People are looking to buy homes, bolstered by a recovered economy, a drop in unemployment and low interest rates contributing to what Bulanti called “the best loan environment in history.”
However, those conditions aren’t triggering an increase in housing supply for several reasons, Bulanti said.
He said it’s a cyclical process that keeps housing supply from stagnating. Typically, first-time buyers purchase “entry level” homes, and then continue to move up to other properties. At the same time, members of the baby boomer generation, most of whom are long-time homeowners, will eventually move out of their homes into other residences — ranging from smaller homes to assisted care facilities to the homes of family members. The cycle ensures inventory is constantly freeing up, Bulanti said.
But, “we don’t have that cycle right now,” he said, something he noted is true across a majority of the state.
Today’s first-time home buyers are generally millennials — and they’re not buying in droves, Bulanti said.
A key reason for that, he said, is that many millennials are saddled with significant student debt, which can skew their debt-to-income ratio.
“That’s what lenders look at as a risk factor,” Bulanti said.
Many millennials are also delaying getting married and having children, he noted — and household formation is one of the major influences on prospective home buyers.
That generation “is postponing all kinds of life decisions, which we haven’t seen in quite awhile,” Bulanti said.
The majority of home buyers in Nevada County are baby boomers and “boomerang buyers” — buyers who may have lost their home during the financial crisis and are now buying another home, Bulanti said.
But those homeowners aren’t actively selling, Bulanti said, partly because home values are still recovering from the economic crash of the late 2000s. Nevada County home values have been increasing, he said, but they’re at about “60-65 percent of the values that we had in 2006.”
Boomers in particular staying in their homes longer, whether it’s because they’re comfortable in the home they’ve lived in for decades and are likely making lower mortgage payments, or because they’re not sure where they’d move to; retirees can have a more difficult time qualifying for a loan if they were to purchase another house, Bulanti said.
“The boomers are now the bottleneck” in the housing market, he said.
That stagnated housing cycle is also being compounded by the fact that new homes aren’t being built at a fast enough pace.
Bulanti noted the construction industry was hit hard during the economic downturn, and while it’s starting to recover, there’s been a decade-long period where household formation in California far outpaced the construction of new housing units.
“Building contractors’ confidence nationwide is not as high as we would like to see, and we’re not seeing the units come back into the market that we need to,” Bulanti said. “We have to make up a deficit of 10 years of lack of achievement.”
Bulanti said there is a larger trend of more permits being taken out for housing projects, but, he said, “it takes two years from the minute you put a stick in the ground to have a multi-family unit apartment building, and it takes the same amount of time to have a subdivision.”
Housing inventory in Nevada County is likely to continue to be scarce over the course of the rest of the year, Bulanti said. And that can have ripple effects throughout the county — on the rental market, on an employer’s ability to recruit a potential employee, on the county’s ability to attract young families who will enroll their children in area school districts, he said.
“Housing is absolutely critical to all of that,” Bulanti said.
Bulanti said areas across the state will likely have to start thinking “outside of the box” for housing solutions — and that includes exploring the construction of apartment and cohousing buildings and condominiums.
“One thing realtors always say is that we’re not making any more land,” Bulanti said.
That means the idea of “one lot, one house” may not be as feasible as in years past.
“I’m afraid those days are kind of numbered,” Bulanti said. “And we’re going to have to look at our resources and say, how do we better utilize what’s left?”
To contact Staff Writer Emily Lavin, email firstname.lastname@example.org or call 530-477-4230.
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