Seller's market has no end in sight as Ames housing supply strains market
Two years into the pandemic, supply still can't compete with demand when it comes to home buying — and the end of this seller's market is nowhere in sight.
The number of houses on the market in Ames from 2020 to 2021 decreased by over 100, yet housing sales soared to the highest level in four years in a market where houses sell almost as soon as they are listed, according to the Central Iowa Multiple Listing service.
At the same time, the average home price in Ames rose nearly 15%, or $45,451, to $303,451 after years of stagnant prices. And during historic inflation, the Federal Reserve has launched an aggressive campaign of interest rate hikes to curb it.
"We're just starting to see some of the impacts related to the increase in interest rates," Friedrich Iowa Realty Broker Luke Jensen said. "And the outcome of the increase in interest rates is still to be determined."
Meanwhile, the COVID-19 pandemic triggered supply chain issues for products ranging from garage doors to lumber, causing price spikes. Dan Culhane, president and CEO of the Ames Chamber of Commerce, said an estimate at the lumber yard is good for only about seven days.
Local real estate data show fewer homes were on the market last year. There were 773 homes for sale in Ames in 2018, and 816 in 2019. The supply dipped to 765 in 2020, and 652 in 2021.
“It's unusual, from the standpoint where we just don't have enough listings,” said Beth Skluzacek, association executive for the Central Iowa Board of Realtors and Multiple Listing Service. “To only be sitting at 50-some listings for a town of over 30,000 people, we’re just extremely, extremely tight. All over the country is kind of facing this really needing inventory.”
But the tight market is not only a matter of limited home supply, but possibly the results of a new group of home buyers, Jensen said.
“Twenty-five- to 39-year-olds are now entering their prime homebuyer years, and there's just not a lot of options for those buyers,” Jensen said. “Construction has increased nationwide, but it's not keeping up at a pace where it's meeting the demand.”
Despite the limited supply, 608 homes were sold in 2021, the most homes sold in four years. The number of days homes were active on the market also dropped, from 103 and 99 in 2018 and 2019, to 70 in 2020, and just 37 days on the market in 2021.
Jensen said they are seeing aggressive buyers, typically offering over the list price and waiving typical contingencies like inspection, to compete.
'We don't want Ames to lag'
The lack of housing stock did not start with the pandemic. According to the 2021 study “Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing,” the COVID-19 has exacerbated a housing shortage caused by a trend of underbuilding over the last two decades.
Ames hit a peak of 240 new home builds in 2004 before the 2008 stock market crash sent home builds to below 60 a year. Though the home builds returned to pre-2008 numbers by 2013, home builds were down to 63 in 2019. Eighty-eight were built in 2020, and 90 in 2021.
A housing supply that does not meet robust demand ends up "driving housing prices higher, reducing affordability and making homeownership less accessible for low- and moderate-income households,” according to the study.
Ames is not alone in the housing supply struggle. Huxley and Nevada both saw less housing available on the market and prices rise in 2021. Nevada home builds dropped by half in 2020 and 2021 from the previous years' builds.
Huxley had nearly doubled its 2018 home build numbers in recent years, building 37 homes in 2021, and Culhane said it anticipates building 100 during the current fiscal year. This could be an opportunity for communities outside of Ames to grow, likely bringing in Ames commuters.
The fear, as Culhane described it, is that a Huxley commuter to Ames may decide to look to the Des Moines metro for jobs instead, eventually straining the Ames workforce.
According to the U.S. Bureau of Labor Statistics, the Ames labor force is at 59,800, nearly up to pre-pandemic levels after dropping to 53,000 in June 2020. The unemployment rate is at 2.1%, the lowest since June 2020, when it hit 7.6%.
"We don't want Ames to lag. We want people to continue to invest in Ames as well as our neighboring communities," Culhane said.
The current market could lead some to rush into buying a new home. A February Zillow Research study found 75% of recent homebuyers who responded had some regret about their new home, whether it be they didn’t spend enough time searching for a home or not finding the right real estate agent or broker.
Skluzacek said even with increased housing prices, homeownership remains a good investment, but now it is even more crucial to find a trusted agent or broker.
“In a market that's this robust,” she said, “I would encourage them in every case to have great representation, have a great Realtor that can do a lot of the heavy lifting for them.”