Housing Inventory: It’s ‘Painfully Low’

Single-family housing inventory has been tight for many months, but in September it was down to “painfully low” levels—and it’s having an adverse effect on the housing market. Meanwhile, demand for housing has remained strong, according to the National Association of Realtors (NAR) September Pending Home Sales Index (PHSI).

The PHSI, which is based on contract signings, increased by 1.5 percent up to 110.0 in September, up from August’s slightly downward revision of 108.4. September’s PHSI was up over-the-year by 2.4 percentage points (up from 107.4 percent), and the PHSI has increased year-over-year in 22 of the last 25 months, according to NAR.

Still, tight inventory remains a problem for housing.

“The one major predicament in the housing market is without a doubt the painfully low levels of housing inventory in much of the country,” added Yun. “It's leading to home prices outpacing wages, properties selling a lot quicker than a year ago and the home search for many prospective buyers being highly competitive and drawn out because of a shortage of listings at affordable prices.”

NAR’s existing-home sales report for September indicated that the housing market is showing continued improvement as 2016 winds down. Existing-home sales the month (annual pace of 5.47 million) were at their third highest pace since February 2007. Distressed sales were down to 4 percent, their lowest share since NAR began tracking the data. Additionally, the first-time buyer share was 34 percent, the highest level in four years.

Labor market improvements are a cause for guarded optimism despite the continually low inventory, according to Yun.

“Buyer demand is holding up impressively well this fall with realtors reporting much stronger foot traffic compared to a year ago,” Yun said. “Although depressed inventory levels are keeping home prices elevated in most of the country, steady job gains and growing evidence that wages are finally starting to tick up are encouraging more households to consider buying a home.”

Data shows that when first-time buyers do buy, they tend to gravitate toward existing-homes because they are more affordable than new homes, according to NAR. The median price of a new home in September was $313,500 in September, which was 34 percent higher than the existing-home median price ($234,200), according to the U.S. Commerce Department.

“Having starter home options for new buyers is really important,” said Danielle Hale, managing director of housing research at NAR. “But we do find the majority of first-time buyers tend to buy existing homes, because there aren’t many new homes on the market in the starter home price range.”

NAR reported that approximately 12 percent of existing homes between the prices of $150,00 and $199,000 were sold during September, while more than half (57 percent) of new home sales sold for between $200,000 and $399,000. Only 2 percent of all new home sales in September went for $150,000, a decline of 5 percent from last year.