Low inventory continues to push home prices higher

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Published Date 8/25/2017

Home buyers today, especially those entering the market for the first time, are experiencing the effects of the current shortage of housing inventory. Multiple offers on listings are common, and properties often sell above their asking price.

According to Realtor.com, the nationwide inventory is 1,582,842, a decline of 10% from the same time last year. New housing starts in May were at an 8-month low: 779,000, down 1.9% from the previous month. Today’s inventory is a 4-month supply, compared to 12 months’ supply in mid-2010.

This shortage, existing even in the face of historically low mortgage rates and good availability of credit, has led to sharp increases in home prices. Nationwide, the median price of a single-family home has risen nearly 10% from the previous year.

The time a property spends on the market has dropped, as well. The national average is 64 days, but in some markets, that time is significantly shorter. In the Detroit Metro area, homes sell in 38 days. In the San Francisco Bay Area, properties sell in 32 days—and the number of active listings is below 5,000. This is 23% fewer homes for sale than last year. There are a few outliers, however; Abilene, Texas, with its 692 active listings, reports 60 days on the market for its inventory, which is on a par with last year’s figures.

The nationwide shortage of inventory could reach crisis proportions soon. Some would say that the crisis is here today. Although home prices are rising at a double-digit rate in many areas, after-tax incomes have not kept up, increasing by just 2.2% over the past year. Much of the inventory increase has been in the upper-tier, pricier homes. Lower-priced, “starter” homes are flying off the shelves. In many markets, multiple offers are common in the first week a lower-priced home is offered.

The tight housing supply has contributed to the rising prices—and rents have come under pressure, as well. Would-be homeowners trying to save enough cash for a substantial down payment and closing costs often find themselves losing hope as they watch home prices rise ever higher.

Move-up buyers are not in the same predicament as first-timers. Their equity is increasing along with the broader market, so they are not watching their purchasing power decline. Furthermore, they are not faced with rising housing costs as renters are, so they can afford to sit tight.

First-time buyers can take heart in the fact that there is some form of buyer assistance in all 50 states. This may take the form of grants or low-interest loans to help cover down payment and closing costs, and in some areas, tax credits to help offset the higher costs of home ownership. Real estate and mortgage professionals are in the business of keeping abreast of these kinds of programs.

A conversation to explore the options will be time well spent for any aspiring homeowner.

Source: TBWS

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