Lack of inventory holds Cincy's housing market down

Josette and Martess Miller were ready to stall their 18-month-long home search before landing on a more than 100-year-old home in Avondale last year.

The Corryville couple browsed through countless property listings. Yet despite walking away from one deal, it seemed nearly impossible to find a home near the University of Cincinnati for themselves and their nine-year-old son.

But in November, the couple closed on a Washington Avenue fixer-upper for $182,000. The six-bedroom home had been on the market for three days before they "locked in" a bid, Josette Miller said.

"The number of homes available within our price range didn't seem to be very high," she said. "In most cases, they needed too much work or if they didn't need a lot of work, they were out of our budget."

The Millers represent the thousands of Greater Cincinnati families that fueled residential real estate activity in 2015. However, their search also underscores the low inventory available and what happens when you struggle to find the house you want.

Sales of existing homes in Southwest Ohio, Northern Kentucky and Southeast Indiana rose between 6 and 8 percent in 2015 compared to a year earlier.

Cincinnati Area Board of Realtors President Patti Stehlin pointed to an improved job market, low interest rates and higher levels of consumer confidence as factors pushing buyers and sellers to reach deals.

The National Association of Realtors and the Greater Cincinnati real estate board said excluding new builds, 2015 was the best year for residential real estate sales since 2006. Northern Kentucky reached a total sales volume of $1 billion for the first time since 2006.

"We are in a normal, good market again and we expect 2016 to be the same or even better," said Jim Simpson, president of the Northern Kentucky Association of Realtors.

Now for some cold water on that momentum: The number of single-family residential and condominiums for sale in Greater Cincinnati is at its lowest level since 2000. There was an average of 8,100 homes listed for sale in 2015, according to the Multiple Listing Service of Greater Cincinnati. That number has declined steadily since 2007 – a time when there was an average of 16,424 homes for sale.

This trend is not unique to Cincinnati. Nationally, the unsold inventory of homes in December was at its lowest level since January 2005.

"Now that we're well into a recovering market, the biggest challenge is low inventory," Sibcy Cline agent Rob Fix said. "There's a lot of buyers out there but not enough homes in the market, which is a lot better than the reverse. It's definitely a seller's market."

Here's the big problem with low inventory. There's no immediate fix.

Several reasons contribute to dearth of homes on the market, based on The Enquirer's recent interviews with real estate industry analysts, economists and residents.

They include:

• Elevated levels of homeowners with negative equity, or owing more on their mortgages than their home is worth.
• Low interest rates.
• Broad trends favoring renting instead of owning homes.
• A lack of affordable homes on the market.
• Lower levels of new construction.
• Tighter credit availability.

Rob Sibcy, president of Sycamore Township-based real estate brokerage Sibcy Cline, said since the years after the Great Recession's end in 2009 have been the slowest recovery he's seen in a career spanning five decades.

Rebound in new home construction at last

Historically low interest rates have helped encourage millions of families to buy homes, but they have also given existing owners the chance to refinance their mortgages. But John Payne, an agent with Keller Williams Advisors Realty, said instead of buying properties, owners have used the savings or home equity lines of credit to improve their homes.

"Finally, people are comfortable in their houses financially so they don't want to leave," he said. "When people figured out they couldn't sell because of the poor economy, people with money and good jobs improved their houses so they can stay instead of moving."

Then there are people who have limited ability to move for financial reasons.

Negative equity remains an issue for 16 percent of Greater Cincinnati homeowners, according to real estate company Zillow. The highest mark was in Clinton County, where a quarter of all homes are underwater, and the lowest was Warren County at 10 percent.

Janet Harrah, senior director of Northern Kentucky University's Center for Economic Analysis and Development, said consumers in this underwater category may want to buy, but need higher levels of appreciation on their real estate.  The median selling price for homes in Greater Cincinnati and Northern Kentucky was $142,500 in 2015, the highest it has been since 2008.

It's not worth lamenting returning to the real estate market activity seen in the mid-2000s, Harrah added. She said the pace of sales activity, prices and new development were not sustainable back then.

"If you go back to those levels again, we'll repeat another housing bubble and a housing bust," she said.

Buyers looking to "trade-up," or obtain larger homes to support personal desires or growing families, could be delaying plans because of the slowdown in development of new single-family homes and condos, compared to the number of apartments being built.

Sibcy said a few years ago, people feared to list their property because they might not find a buyer. There's a different concern present in the real estate market today.

"Now, people are worried it'll sell quick," Sibcy said. "They're looking to buy first and then put their house on the market."

New single-family residential construction is still working to rebound from the post-recession credit crunch, Harrah said. Tiffani Tribble, an agent with Comey & Shepherd Realtors, said the shortage of inventory is acute for people looking to buy more affordable housing.

Liberty Township resident Jill Washburn-Jones said she and her husband, David, completed a move in 2015 from Mason to Logsdons Meadow Drive, which is near Ohio 747 and Princeton Road.

The couple wanted to downsize from a four-bedroom home to a smaller ranch-style residence. But it took months of searching property listings and debating whether to move to an apartment because they couldn’t settle on a home to buy. Newer construction options were too expensive and the savings on rent from apartments didn’t provide savings compared to their mortgage in Mason, she said.

“You can’t find that sweet spot of $200,000 homes,” Washburn-Jones said. “It takes some digging and you have to be really willing to work and find where you want to go and hopefully the right house comes up. You have people who are just coming into the market and those who are marginally upgrading from beginner homes and then people like us who want smaller homes.”

Ohio State University finance professor Itzhak Ben-David said few markets around the country can escape the shift toward renting instead of owning property. The average homeownership rate in Greater Cincinnati last year was 65.9 percent in 2015, down 2.5 percentage points from 2005, according to U.S. Census Bureau estimates. Baby boomers and millennials are driving that trend, as there’s less interest dealing with property taxes and maintenance, he said.

“Before, once you got married or reached age 30, you had to get a home,” Ben-David said. “It was your duty. Now it’s much more relaxed, largely because people saw their parents suffering during the financial crisis.”

Ben-David said technology may indirectly play a role in reducing the amount of people who need to search for homes. Instead of relocating to a new market and helping workers find a new place to live, telecommuting reduces the need for people to change where they live to support their jobs.

THE BOTTOM LINE ON SALES

Here's data on Greater Cincinnati's residential real estate market in 2015 compared to 2014. Data reflect purchases of existing single-family homes and condos. Data may include transactions outside of the Cincinnati metropolitan statistical area.

Southwest Ohio

24,272 closings, up 7.2 percent

$142,500 median price, up 4.8 percent

Northern Kentucky

6,336 closings, up 6.4 percent 

$142,500 median price, up 6.4 percent 

Southeast Indiana

1,163 closings, up 7.6 percent

$130,000 median price, up 4 percent

Sources: Cincinnati Area Board of Realtors, Northern Kentucky Association of Realtors, Southeastern Indiana Board of Realtors