Whether you call it a housing crisis, housing shortage or demand exceeding supply, we all know there aren’t enough houses to satisfy potential home buyers right now in Colorado.

So how do we fix it?

For the last year, we have seen skyrocketing housing prices in the Denver metro area. The median price of a single-family home is now $595,000, up almost 27 percent over last year. Days on market in May were 11; last year, a home would typically be on the market for 23 days before going under contract.

Even attached homes (condos and townhomes) are ticking up in price after a slow start in 2021. The median price for an attached residence is $380,000, reflecting a 16 percent increase over 2020.

Adding to the homebuying challenges is the that fact May 2021 set a record to a new low in the number of listings — 2,075. For reference, May 2006 posted the record-high of 30,457.

Fueled by low interest rates, savings accrued during the pandemic, and pent-up demand, people looking to buy for the first time, those wishing to buy up, and older Americans who want to downsize are all vying to get into their next home. The problem is there isn’t enough inventory.

Fueled by low interest rates, savings accrued during the pandemic, and pent-up demand, people looking to buy for the first time, those wishing to buy up, and older Americans who want to downsize are all vying to get into their next home. The problem is there isn’t enough inventory.

Many people have elected to take advantage of the low interest rates and refinance their homes. Instead of selling, they are opting to remodel and/or put additions on their current home which also shrinks the supply.

So what’s the answer? How do we get more people out of rentals and into their own homes where they can build wealth for generations to come? How can homeowners feel confident about trading up to their next residence?

Here are three variables that may impact housing inventory through 2021 and into 2022, and may start to help bring more homes to the market.

Lumber Prices

Lumber prices have skyrocketed more than 300 percent since April 2020 according to the National Association of Home Builders. As a result, buyers are seeing an increase of $36,000 per home as a result of these escalating rates. The price of lumber has been constricting the housing market as people are reluctant to buy at elevated prices and builders are postponing construction plans.

However, just recently we have seen lumber futures trading below $1,000 per thousand board feet for the first time since late March according to Yahoo! Finance. Futures are now down almost 40 percent from their record high in mid-May.

Unfortunately, you probably won’t see prices start to come down for several months as there is typically a delay between trading and what consumers ultimately pay.

And we can only hope that the Fed is correct when it says inflation pressures will be “transitory.” So perhaps lumber is the first sector that is showing signs of price leveling.

Mortgage Forbearance

According to an article in Housing Wire, “Mortgages in forbearance fell for the 15th consecutive week last week to 4.04% of servicers portfolio volume ― a 12 basis point decline, according to a survey from the Mortgage Bankers Association. As of June 6, the MBA now estimates 2 million borrowers are still in some form of forbearance.”

“Homeowners who are reaching the end of their forbearance term need to contact their servicer to discuss the next steps in the process, as servicers cannot extend the term without talking to the borrower,” Mike Fratantoni, MBA’s senior vice president and chief economist.

Unfortunately, homeowners will face foreclosure if they cannot extend the terms of their forbearance. If that happens, additional homes will ultimately make their way to the market and help expand inventory.

Incentives for Home Builders to Entice First-Time Home Buyers

It goes without saying that entry-level homes are in short supply. Millennials and the first wave of GenZ buyers often end up empty-handed when trying to land their first home. Whether they are up against older buyers who are making a cash offer or developers/investors who have deep pockets, first-time homebuyers are at a financial disadvantage in this scorching housing market.

According to Taylor Wilson, DMAR Market Trends Committee member, a home that last year was priced below $500,000 has appreciated and now finds itself valued anywhere between $500,000-$749,000.

“As prices rise, there are simply fewer homes available under $500K,” he said. “The inventory crisis we hear about is not a crisis of inventory but a crisis of demand. The more accurate story is demand is high and the speed at which homes come on and off the market is lightning fast.”

By offering tax breaks or other incentives, the federal government could motivate homebuilders to construct more entry-level homes that would fit the budget of first-time buyers.

Furthermore, similar incentives could be offered to homeowners who sell to first-time homebuyers. Whether it’s through a temporary capital gains exemption, tax credit or other financial boost, current homeowners may be more likely to list their homes and trade-up (or downsize) if they are seeing a significant benefit. Many people have opted to refinance to lower their costs and renovate to avoid selling. Others are just waiting to see where the market goes in the next few months.

It’s important to remind present-day homeowners that the low interest rates won’t last forever and now may be the time to capitalize on them. There is a cost you may end up paying for waiting too long to sell, and that could be in the form of higher interest rates for a loan.