BAM Key Details:
- A new Redfin report shows only 1% of U.S. homes—about 14 of every 1,000—have changed hands during the first half of 2023. That’s the lowest turnover rate in at least a decade.
- Homes are hardest to come by in Northern California and easiest to find in Newark, NJ and Nashville, TN.
- Turnover is lowest for 2-3 bedroom homes in both urban and suburban neighborhoods.
That 1% turnover rate is a significant drop from 19 of every 1,000 that sold during the first half of 2019. It’s also the lowest turnover rate in at least ten years.
Five years ago, in 2018, Freddie Mac was already looking at the shortfall of housing supply and estimating we needed about 2.5 million more homes, largely because we weren’t building nearly enough single-family homes.
And when mortgage rates almost doubled from January to June 2022, the lock-in effect of lower rates kept many would-be sellers on the sidelines and convinced a fair share of them to rent out their homes rather than sell them.
The quick increase in mortgage rates created an uphill battle for many Americans who want to buy a home by locking up inventory and making the homes that do hit the market too expensive. The typical home is selling for about 40% more than before the pandemic. Mortgage rates dropping closer to 5% would make the biggest dent in the affordability crisis by freeing up some inventory and bringing monthly payments down. But there are a few other things that would boost turnover and help make homes more affordable. Building more housing is imperative, and federal and local governments can help by reforming zoning and making the building process easier. Financial incentives, like reducing transfer taxes for home sellers and subsidizing major moves with tax breaks, would also add to supply.
Suburbs have seen the biggest drops in turnover rate
Prospective buyers looking for large suburban homes have seen their options shrink the most. Roughly 16 of every 1,000 four-bedroom-plus single-family homes changed hands in the first six months of 2023—two-thirds of the turnover rate (24 of every 1,000) from the first half of 2019.
That translates into 33% fewer suburban homes of this size available for buyers.
Earlier this week on the Hot Sheet, Byron Lazine remarked on how buyer preferences regarding home size shifted in 2020, bringing an increase in demand for larger homes.
There was a time there from 2015 to 2019, where I just didn’t think the 8,000–7,000 square foot home really had a significant place in a lot of suburban communities anymore. You had family sizes getting smaller, not bigger. You had more owners of these homes as empty-nesters. And so, it was creating, certainly in the Northeast, a glut of this type of inventory. And then, all of a sudden, 2020 came, and you’ve got Millennials…saying, ‘I’ll take it, even though I’ve got two kids. I’ll roll with 7,000 square feet,’ after experiencing one year in 2020 locked into their home. And then, people get used to the space. ‘Hey, I kinda like having two offices, a movie room, and a couple bedrooms and a spare room for the mother-in-law.’ And so, you’ve seen that trend go back, and these homes are now much harder to find.
The turnover rate declined in every type of neighborhood and for every size home over the past four years. Turnover rates for condos and townhomes didn’t drop as much as for single-family homes during the pandemic. Demand wasn’t as high for these types of homes, so supply wasn’t depleted to the same degree.
Smaller homes in the city have the lowest turnover rate
Of all the home types in Redfin’s analysis, the one hardest to find right now is the modestly-sized home in urban neighborhoods. About 11 of every 1,000 two- and three-bedroom single-family homes of this type sold in the first half of 2023—compared to 14 of every 1,000 during the first half of 2019.
For two- and three-bedroom suburban homes, 11 of every 1,000 sold in the first half of this year—down from 16 of every 1,000 in 2023. So, where 2023 is concerned, small suburban homes are essentially tied with their urban equivalents.
Across all neighborhoods, smaller single-family homes have been more difficult for buyers to find for some time, now, because—
- Builders haven’t been making as many (larger homes are more cost-effective to build).
- Owners of these homes have been holding onto them.
Today’s builders have been focusing on homes that are high in demand and profitable to make: larger single-family homes as well as condos and townhomes. The former don’t cost much more to build than smaller homes, and they sell at higher prices. Condos and townhomes cost less to build.
Given today’s mortgage rates, owners of “starter homes” are more likely to turn these homes into rental properties and use the rental income to offset their costs when they purchase a larger home. This works well in desirable neighborhoods where they can find plenty of renters happy to pay the asking rent to live in walkable areas.
Northern California has the lowest turnover rates
Looking at large suburban homes (four-plus bedrooms), the turnover rate is lowest in San Jose, where 6 of every 1,000 homes of this type changed ownership in the first half of 2023.
In fact, the five metros with the lowest turnover rates in the U.S. for large suburban homes are all in Northern California:
- San Jose (6 of every 1,000 homes—down 40% since 2019)
- Oakland (7 of every 1,000—down 43%)
- San Diego (8 of every 1,000—down 51%)
- Sacramento (9 of every 1,000—down 41%)
- Anaheim (9 of every 1,000—down 41%)
From 2019 to 2023, the pandemic worsened the shortage of available housing throughout California; the turnover rate dropped by at least 30% in each of the metros listed above.
Historically, California has the lowest housing turnover because of its state tax laws—specifically Proposition 13, which limits property tax increases, incentivizing homeowners to stay put. And today’s mortgage rates only compound that effect for homeowners locked into lower rates.
Newark and Nashville have the highest turnover rates
The home turnover rate is highest in Newark, NJ, where 24 of every 1,000 homes sold during the first six months of 2023. Newark is followed closely by Nashville, TN (23 of every 1,000) and Austin, TX (22 of every 1,000).
Nashville and Austin, together with Fort Worth, TX, are the three metros with the highest turnover rates for large (four-bedroom-plus) suburban single-family homes.
That said, compared to 2019, Newark still has far fewer homes for buyers to choose from; turnover has fallen 42% in the last four years, putting Newark among the top three metros with the biggest declines in turnover—led by New Brunswick, NJ (-49%) and San Diego, CA (-46%).
If we focus exclusively on large suburban homes, New Brunswick still leads the three metros with the biggest declines in turnover:
- New Brunswick (-55%)
- Chicago (-54%)
- New York (-52%)
Metros with the smallest declines in turnover
Nashville and Austin both are among the top five metros with the smallest drops in turnover since 2019—falling by 10% and 14%, respectively. That puts them just after Milwaukee, WI, and Columbus, OH, which are tied at 8%. Indianapolis, IN, takes fourth place with a 14% drop.
Housing turnover has been relatively stable in Milwaukee, Columbus, and Indianapolis since none of these metros experienced huge swings in buyer demand during the pandemic.
Looking at larger suburban homes with four or more bedrooms, Nashville and Austin rank second and third for the smallest declines in turnover, partly due to a healthy uptick in new construction in both metros. Newly built homes account for 30% of inventory, compared to the 22% national average.
Smallest declines in turnover:
- Milwaukee, WI, and Columbus, OH—8%
- Nashville, TN—10%
- Austin, TX—14%
- Indianapolis, IN—14%
Takeaways for real estate agents
Share this data—at both the national and local levels—with your clients when you’re clearing up confusion from scary headlines and helping them understand the landscape.
Show buyers the challenges they’re facing with inventory in today’s market as you break down what you’ll do to help them find and purchase a home they love.
Give sellers a sense of just how welcome their home would be to buyers in their area who are ready to transact and willing to bid more on homes that check all the important boxes.