The lack of supply of available houses has led to the real estate market to be inventory constrained. Inventory in California is around a four month supply. Normal for the market is between 6 and 7 month supply. Nevada County is lower at around a 3.3 month supply. Coupled with higher demand, this raises values, sale prices, and rental rates. It increases the competition for available housing.
The Economists at the California Association of Realtors estimate that there is an average of 165,000 households forming on a yearly basis. Reviewing construction building permits from 1980 to 2015 only 13 years did builders hit or exceed 165,000. In 22 of the years, builders did not meet this goal. More importantly, multi-family units were a good portion of the construction boom from 1983-1990. In the next construction boom 2002-2006 there fewer builds than the 80’s and a much lower percentage of multi-family units to single family homes. During the past 35 years, construction of both types of housing dropped to its lowest level on the chart in the years 2008-2012. 2014-15 has seen a decent rise in new construction with a more favorable balance of single family residences and multi-family units. The prediction is for the production of 124,600 units in 2016…well below the 165,000 households forming in that year. Since 1980, we have been missing 100,000 units annually to put into the housing pipeline.
2015 marked the lowest level of home ownership since World War II. In the United Sates, it is down to 63% of households are home owners. In California it has plummeted to 54%. Certainly the Great Recession had a lot to do with folks losing their homes and investors scooping up the REOs by the bushel. Today boomerang buyers are coming back into the market. They have tasted home ownership and know how good it is. They have healed their credit and obtained steady, higher paying jobs. But inventory is low and they don’t have a lot of choices.