U.S. Housing Inventory at a 20 Year Low

June 2017

Economic conditions in the U.S. have remained steady over the past year, giving many people the opportunity to purchase a home. A solid job market, average pay increases and historically low mortgage rates; people across the U.S. are looking to make that transition from renter to owner occupancy.

However, they face one major issue: trying to find a house.

The national supply of homes has reached a 20 year low and over the past year the steepest drop in supply has occurred among homes that are typically the most affordable for first-time buyers. April 2017 had a 5.7 month supply of homes a slight increase over March 2017 figure of 4.9 supply, however not nearly enough to meet the current demand.

Across different housing segments, starter and trade-up home inventory fell 8.7% and 7.9% year-over-year nationally, respectively. Meanwhile, the stock of premium homes remained relatively unchanged since last year, having fallen just 1.7%.

With a limited number of property listings amid solid demand, sellers have little reason to reduce asking prices. Housing not only has become difficult to find but also difficult to purchase due to rising housing costs. Starter homes median price has increase 8.3% during the first quarter of 2017 over 2016, while trade-up homes and premium home prices have risen 6.8% and 7.2%, respectively.

Among the factors that have fueled the decline in housing inventory are:

  • Homeowners are staying in their houses longer, averaging 8 years. Nearly doubled since 2008
  • Investors hold a large share of properties, utilizing them as rental properties. In 2016, investor owned housing increased to 35% of the market share, up 5% over the last 10 years average of 30%.
  • Pace of income growth is lagging behind property values, affordability constrains mean rental demand will remain robust. Investors are reluctant to give up property.

While the long term solution for the housing market would be for builders to replenish the stock of new homes, they cannot seem to do it fast enough. Builders are completing homes at 65% of the rate they have historically. Builders are also faced with challenges such as the lack of ready-to build lots, costly regulations and a chronic shortage of skilled construction workers.

Despite the scant supply, U.S. home sales are expected to rise this year, economists say. Fueled by job growth, pay raises and still-low loan rates — and perhaps fearful of being left out as more homes are snapped up and prices rise further — many people are looking to buy.

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