How to Solve the Annoyingly Low Real Estate Inventory Problem & Build the Home of Your Dreams (Why an Existing-Home Construction Loan is the Answer)

If you’re like many clients I speak with, your family may be ready for a home that better fits your needs.  It’s possible your family size has changed, your lifestyle and recreational interests have evolved, or your just plain old sick and tired of wasting hours of your life commuting.

Unfortunately, the annoyingly low real estate inventory problem is making it hard for millions of Americans and thousands of Utahns to find the home of their dreams; one that will fit their family’s needs and afford them a better lifestyle.

Here are a few of the statements I hear from clients regularly:

I would love to sell my home, but I can’t find anything new to buy!

Everything we look at is overpriced and we’re not going to play the bidding war game!

We would love to build new, but there is virtually no raw land where we want to live! 

If you feel similar to many of the clients I speak with on a day to day basis, I suggest you continue reading, because we might have the perfect solution for you and your family.

The problem with the real estate market is not that there are not enough homes, the problem is that there are not enough homes that fit your family’s needs. 

By the end of this article you’ll better understand the root of the real estate inventory problem, feel empowered to make an educated decision, and realize you can solve for this problem with an Existing-Home Construction Loan.

What is causing the housing inventory problem? 

Since the Great Recession, the U.S. has been consistently creating jobs, over the last twelve months 2.28 million net new jobs have been created (a 1.56% increase over the previous 12 months).

Salt Lake is adding jobs at an even faster pace with 18,300 new jobs in the preceding 12 months and an annual growth rate of 2.57% (nearly 65% faster than the U.S. job growth rate).

Surprising to most clients I speak with, Utah’s job growth rate is the highest amongst all 50 states at 3.29% (more than double the U.S. job growth rate).  It stands to reason the states with the quickest pace of job growth will also be the states with the most competition for housing and likely the highest rates of real estate appreciation in the coming years.

The data on earnings shows that all those new jobs are forcing employers to compete for talent by increasing hourly earnings.  We now have more people employed in the U.S. and in Utah, than any time previous in history.  As the pace of new job growth accelerates and employers pay more for both new and existing employees, demand for housing will continue to increase.

“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2016, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” – Dr. Frank Nothaft – CoreLogic Chief Economist

I mentioned the U.S. economy has added 2.28M net new jobs in the most recent twelve month period, meanwhile there has only been 1.16M new dwelling building permits pulled.  Over the last year the U.S has created 1.97 net new jobs for every one dwelling being built.  Historically that average has been closer to 1.25 to 1.5 new jobs created for every new housing unit.

Clearly home builders are not building fast enough to keep up with the demand coming from new job creation.  Until builders catch up, we will have greater demand for housing than we have supply, competition for existing homes will be fierce, and home prices should continue to rise in most areas of the country, especially those areas with quickly expanding economies.

As you might have already guessed, Utah’s new job to new dwelling ratio is even more severe.  In Salt Lake for example, there were 2.1 new jobs created to every new dwelling unit built.  The question that begs to be asked is, “where are all those people going to live?”

As I work on this report the ADP Employment Report came out for July 2018 and not only was June revised higher to show 181,000 new jobs created, but July was a blockbuster number showing 219,000 new jobs created.  As you can see from the graph below, employers continue aggressively hiring to keep up with the demand from this surprisingly strong economy.

As of June 2018, the National Association of Realtors reports a 4.1 month inventory of existing homes for sale in the U.S.  The months’ supply report indicates how long the current inventory of existing homes for sale would last at the current sales rate if no new additional homes were brought to the market.

A balanced real estate market will have home inventory levels hovering around six months’ supply.  Before the crash, many areas had twelve to eighteen months supply of homes for sale.  Obviously far too many homes had been built at that point and the result of the oversupply was significant price depreciation (i.e. housing crash).

Today we are seeing the exact opposite, home builders cannot keep up with demand for housing, inventory is extremely tight, and home prices are likely to continue to increase until the supply imbalances are resolved.

In the grand scheme of things, the annoyingly low inventory problem is a pretty good problem to have.  More Americans are employed today than any time in history and the growing economy has created more wealth than ever before in the U.S.

In fact, the Federal Reserve reported in June that for the first time ever, U.S. household wealth topped $100 trillion, attributed to rising housing and stock markets over the last decade. The chart below is pretty incredible, showing U.S. household wealth literally double since 2003.

None the less, we do have this annoyingly low inventory problem to deal with!

What is the solution to the low inventory problem?

For many of our clients, the solution starts with a shift about how you think about the problem.  The reality is there are plenty of existing homes with big enough lots, in the right neighborhoods, which would allow plenty of room for your family to grow or use as your family needs.

The challenge is the vast majority of homes fails to fit your taste and needs exactly.  So we continue to hunt, seemingly endlessly, for the needle in the haystack house that meets our expectations and our families future needs perfectly.

Unfortunately, so is every other family that wants a perfectly kept and functional home in your highly sought after neighborhood.

But imagine if you could find virtually any home in the neighborhood you want to live in, provided the lot was big enough, and you could transform that home into your dream home.  Imagine if you built a brand new home, on an already existing home in the neighborhood you want to be in.

That is exactly how we can help to solve this annoying inventory problem, stop searching for only the best homes, and actually start searching for the worst homes (on the best lots) in the neighborhoods you want to live in.

Why doesn’t everyone buy an existing home and rebuild it the way they want?

Up until now, there have been some significant challenges with buying an existing home and completely making it over into a new home.  The primary challenge was the amount of capital it required to do such a thing.

For example, if you bought a four hundred thousand dollar home and wanted to do a two hundred thousand dollar remodel, you would have needed the down payment and closing costs to buy the home, plus you would need the two hundred thousand for the remodel.  That’s going to put a lot of people out of the game, and even if you did have that much capital available, many don’t feel that much capital sitting in their home is prudent.  Why not have that money out working for you and making money?

The second problem revolves around starting the new home construction project while wanting to still live in their existing home.  Not to mention the majority of the family’s capital might be tied up in the existing home and without selling it, they would not have sufficient funds for down payment or to rebuild the new home to their exact needs.

So we play the game as we always have, we try to find the needle in the haystack new home, write an offer to purchase that home, while simultaneously trying to time our current home sale.  Traditionally that model has worked, as there were plenty of homes for sale and sellers were amenable to sit around and wait for your current home to sell before you bought their home.

Today sellers are not as flexible, and the perfect home that fits your family’s needs are few and far between.

How the Existing-Home Construction Loan can help. 

The Existing-Home Construction Loan allows you to buy virtually any existing home and fund the construction all in one loan.  It also allows for you and your family to remain in your current home or rental, as the construction occurs and your new home is transformed.

Many clients are able to free up their capital from their existing home via a home equity line of credit, which is an acceptable source of down payment on the Existing-Home Construction Loan.

To top it off, it’s possible to finance up to six months interest payments on the new home, right into the construction loan so you avoid making double mortgage payments while the home is built.

The process is simple:

  1. Find an existing home on a lot that is ideal for your family
  2. Make offer to purchase existing home
  3. Work with a general contract on plans to re-build the existing home into your perfect home
  4. Close on the existing home and begin construction
  5. Sell your current home once the construction is complete and your family is ready to move


We’ve also teamed up with several local real estate groups that are actively prospecting choice neighborhoods for off market listings (pocket listings).  Many of these would be sellers feel locked into their home because they have significant deferred maintenance and they feel they cannot list or sell their homes until they have made the home presentable.


Our local real estate partners have created a database of sellers that would love to sell if they didn’t have to do anything to improve their homes and could still get a fair current condition price.


Lastly, we have several general contractors whom have successfully completed the Existing-Home Construction Loan program and are already approved to administer the program.


Resumes and introductions are available upon request to both the local realtor groups and general contractors.


There are certainly more moving pieces to this type of transaction than there is with a simple buy and sell situation.  I would invite you to request a no cost consultation with one of our Existing Home Construction Loan Officers, whom can answer your questions and tell you if you will qualify for the program.

Josh Mettle NMLS #219996 is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants.  You can get more great physician real estate and mortgage advice here or his by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.

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