Where is the Inventory?

DAILY REAL ESTATE NEWS | FRIDAY, FEBRUARY 26, 2016

The median price of existing homes is rising, but the increases don't seem to be motivating many sellers or new-home builders, contributing to the growing lack of inventory in many markets. While NAR's recent existing-home sales report showed January's total housing inventory was up 3 percent from December, it was still lower than a year ago.

Read more: Holding Firm Against the Tide

"The spring buying season is right around the corner and current supply levels aren't even close to what's needed to accommodate the subsequent growth in housing demand," says Lawrence Yun, NAR's chief economist. "Home prices ascending near or above double-digit appreciation aren't healthy – especially considering the fact that household income and wages are barely rising."  

The Fiscal Times recently looked at the main reasons behind the lack of inventory.

1. Builders aren't building new homes.

Builders say that the cost and availability of labor is a huge factor in why housing starts are down this year. A recent Commerce Department report showed that housing starts fell 3.8 percent in January month-over-month. "The disappointing construction numbers reflect the loss of small builders and a shortage of construction labor," says Yun. "Small construction companies have traditionally been the backbone of new-home building, but the difficult financing environment created by local banks since the downturn has thinned their ranks.

2. A slowdown in the distressed market.

Distressed sales are down from 11 percent compared to a year ago, and are at the lowest level since November 2007, NAR reports.

3. People are staying put in their homes.

Why aren't people interested in selling when home prices keep rising? There are a few reasons why they're not budging. More than two-thirds of baby boomer owners, for example, are choosing to make renovations to their home so they can age in place rather than move. There's also a decrease in people moving to a new area for a job, which previously was a big reason why new buyers would sell. Many owners are simply just stuck in their homes due to equity issues. According to CoreLogic, around 8.1 percent of homes are worth less than their mortgage. Finally, many owners are stuck because of the lack of inventory. Sure, they would be willing to sell, but then they face not having decent options in terms of buying.

Source: "Prices Are Rising. Why Aren’t There More Homes For Sale?" The Fiscal Times (Feb. 25, 2016)