The housing market is so hot that some homeowners have become afraid to sell.
In more normal times, first-time home buyers move into starter homes. As their families grow, they upgrade to bigger houses. Eventually, empty-nesters and retirees sell their larger homes to downsize or relocate.
Now, record-high prices are disrupting the usual churn. Plenty of households could sell their homes for a big profit, but then they would have to find a new place to live. Many are unwilling to compete in this frenzied housing market, where they could be subjected to the fierce and costly bidding wars that have become commonplace across the U.S.
“It’s hard to upgrade,” said Thad Wong, co-founder of Chicago-based brokerage @properties. “Even with low rates and the appreciation of their home, they can’t find something better than what they live in right now,” he said of prospective sellers.
The fear of failing to find a new residence is the latest reason homeowners are staying in their homes longer than they did in the past. Many baby boomers are choosing to delay retirement or age in place. And now, some young families who want to trade up worry they’ve been priced out of their neighborhoods.
Brad and Jami Pettiford, for instance, bought their first house in October 2015 in Grosse Pointe Woods, Mich., for $162,000. They’ve since had a second child and want more space. But the nearby homes on their wish list cost more than $500,000.
“It makes you pause and think, is it really worth it?” Mr. Pettiford said. “It’s like, man, I really love this area, but we’re naturally priced out.”
With so many homeowners staying put, U.S. housing inventory has rarely been tighter. The number of existing homes on the market at the end of April was down 20.5% from a year earlier, and the number of homes for sale fell to record lows earlier this year.
That scarcity has helped lift home prices to all-time highs and has started to slow down the pace of sales. Pinched supply is a big reason many economists expect home prices to continue to rise, making homeownership prohibitively expensive for many buyers.
Part of the homeowner’s dilemma is the timing of dual transactions. Many families need to sell their current house before they can afford to buy a new one. In a less-heated market, buyers can make an offer on a home that is contingent upon selling their current home. But sellers today often receive multiple bids, and those with contingency clauses are unlikely to be accepted, agents say.
Some sellers negotiate rent-back agreements, so they can stay in their home for a month or longer after selling while they house hunt. Others move in with family or find a short-term rental.
“Sometimes that backfires, and people end up living with relatives for way longer than they thought they were going to,” said Meredith Hansen, operating principal at Keller Williams Greater Seattle. “I don’t think we can really alleviate the shortage until people feel like they can sell their home and move.”
The supply shortage is especially acute at lower price points. The inventory of existing homes on the market priced between $100,000 and $250,000 slid more than 30% in April from a year ago, NAR said, while the supply of homes for sale above $500,000 rose.
Lexi and Brendan McDonald, who have four children, bought a four-bedroom house near Boise, Idaho, in 2019 for about $235,000, Ms. McDonald said.
“We thought, ‘Oh, the boys can share a room and the girls can share a room, and then we’ll have an extra bedroom that we can use as an office,’ ” Ms. McDonald said.
Their children don’t sleep well in shared bedrooms anymore, Ms. McDonald said, and the family wants to upgrade to a bigger home. But five-bedroom homes in their area cost at least $400,000, she said.
The Boise metro area posted the fastest home-price growth in the country in the first quarter, up 28.2% from a year earlier, according to a Federal Housing Finance Agency ranking of the country’s 100 biggest metro areas.
“Our house is worth probably around $330,000 or $340,000 at this point, which is fantastic, but we couldn’t afford to move anywhere,” Ms. McDonald said. They are considering relocating to Texas.
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Catherine and Blake Winslow were able to make the move-up purchase work. They listed their starter home north of Salt Lake City, which they had bought in 2013, and included a 60-day rent-back as a condition of the sale. Then they started shopping aggressively, touring dozens of homes.
They lost out twice to higher bidders. “All of our family members and friends were like, ‘You can sell, but where will you go?’ And we were starting to feel like they were right,” Ms. Winslow said. They looked for short-term rentals in case they couldn’t find a home within the 60-day deadline.
They ended up getting an offer accepted on a for-sale-by-owner listing and moved in April.
“We feel so incredibly lucky,” she said.