What is Causing the Inventory Shortage in Colorado and Beyond?

Posted By: Rebekah Scott ICOR Blog & News,

COVID-19 presented many challenges to our 2020 economy. It also revealed many shortcomings and future trials we have yet to face. It is no secret that we are in the midst of a housing shortage, one not solely impacting Colorado, but challenging the entire U.S. From Florida to California, we are seeing houses go for 15-35% over the asking price. Nearly every single-family home and multi-family property on the market have multiple offers to sift through.

Yet we are still going through a pandemic where so many lost jobs, so how is this possible? The quick answer, an inventory shortage. According to the National Association of Realtors, in September of 2020 America hit an all-time low of a shocking 2.7 months’ worth of inventory. The following month we hit an even more concerning low of 2.5 months. To create a well-balanced market on a microeconomic level, we need 6 months of inventory. The question remains, “what is causing this shortage?”

First, we must look into how our population demographic is changing. Millennials account for 38% of the population that are currently purchasing homes. Their ages range from 25-40 years old (I think I just got another wrinkle thinking about that). This means that they are in their prime to be starting or expanding their families, trading in their city lives for the suburbs or finally getting a job that affords the ability to buy a home.

Next, we have to look into supply. In 2010 we saw the number of new homes being built be slashed in half. This was due to strict zoning laws and high tariffs on building materials, causing building costs to skyrocket. Since then, the U.S. has been desperately playing catch up. However, it is crystal clear that houses cannot be built quickly enough.

Lastly, the moratorium on foreclosures and the ability to put your mortgage into forbearance has eaten a huge piece of the pie. Many Americans thankfully had a piece of mind knowing that they could defer their monthly mortgage payment for months. This saved many from foreclosing because it bought them time to find a different source of income. However, this has taken away a large part of the market. It forces investors and buyers alike to look to more traditional avenues of purchasing homes. Just when you thought competition could not get any tougher, more investors with heavy cash in hand enter the traditional market.

It is not Colorado alone that is struggling with a massive inventory shortage, it is a challenge we face together as a nation and will continue to face for some time. A feeling of discouragement could be the immediate emotion. However, I encourage you to think about all the opportunities for growth in construction, design, architecture, and all other professions that are included in the home building process. Rest assured, we are all in this together!