• Homebuilding (or lack thereof) has by far the largest effect on inventory, according to a study by Trulia.

Ralph McLaughlin

With eager homebuyers and their agents plagued by low inventory all over the county, Trulia chief economist Ralph McLaughlin decided to take a closer look at the popular explanations for the problem and bust some inventory myths.

As he put it: “Everyone agrees the U.S. housing market is being squeezed by low inventory. What they don’t agree on is why.”

He looked at five common explanations ranging from investors, price appreciation in certain markets, gaps between prices for trade-up and starter homes, markets with a larger share of older homeowners who move less often, and markets with more or less homebuilding. His aim and methodology was to analyze their impact relative to other factors.

Trulia’s research found that of the five factors, it was the lack of homebuilding that had the biggest effect by far — followed by, to a lesser extent, investor activity — though all had an impact.

The chief economist found that new home construction was strongly related to inventory. Every 1 percentage point increase in a market’s housing stock between 2012 and 2017 is, on average, correlated with inventory that is approximately 13 percent higher.

For example, if the Los Angeles metro had increased its housing stock by 2.6 percent instead of 1.6 percent between 2012 and 2017, you could have expected their existing home inventory to increase from 10,181 homes on the market to 11,504 in the third quarter of 2017, an increase of over 1,300 homes.

The next biggest impact on housing stock, Trulia found, was investor activity. Across the 100 largest metros, every 1 percentage point increase in the housing stock owned by investors in a market, is, on average, correlated with inventory that is 2.8 percent lower.

For example, if investors in the Boston metro reduced their ownership of the housing stock from 43.7 percent to 42.7 percent, you could have expected their existing home inventory to increase from 3,290 homes on the market to 3,382 in 2017 third quarter, an increase of nearly 100 homes.

This is useful information for policy makers. Homebuilding and investor activity are factors that could be made more attractive through a combination of strategically targeted land use and tax and financial policies, said McLaughlin.

A surprise finding, meanwhile, was that the share of owner-occupied homes owned by baby boomers is actually positively correlated with inventory. Every one percentage point increase in the housing stock owned by those aged 55 and over is, on average, correlated with inventory that is 3.6 percent higher.

McLaughlin explained. “We think the effect is driven by the fact that markets with the largest share of boomers just happen to be in retirement destinations such as Florida and Arizona — states that haven’t much been impacted by low inventory because they tend to build a lot of homes,” he said.

“This isn’t also to say that boomers owning a larger share of the housing stock won’t become problematic in the future. Their decision to either age in place or move to a retirement home could have a substantial impact on home inventory as well as the broader economy.”

Email Gill South.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription