Seeds of a Housing Shortage

The market is looking much improved today, with home sales and prices heading up. But within this improvement are the seeds of a long-term challenge: falling inventories.

The market is looking much improved today, with home sales and prices heading up.  But within this improvement are the seeds of a long-term challenge: falling inventories.

The inventory of existing homes is at its lowest level in seven years, while newly constructed home inventory has hit a 50-year low mark.  Falling inventory is causing home prices to shoot up higher and faster than most analysts anticipated.  The national median price of transacted homes was up 9.5 percent in August.  Of course, not all markets are robust.  Phoenix is looking to notch a 25 percent gain for the year, while Chicago is just emerging from negative territory.

Distressed home listings will continue to fall because fewer borrowers are now seriously delinquent.  Home construction is up, but only reaching have of the historic average of housing starts.  Even the many pent-up sellers-those normal, nondistressed home owners who’ve been holding back for better market conditions-will not help the net inventory situation, because most of them will be selling to buy a trade-up property.

Slight seasonal relief should come in March, just as the spring buying season gets underway.  But a deeper and longer-term issue to watch out for is the increasing possibility of a housing shortage across many parts of the country.

Source: National Association of Realtors

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