Demand for Housing is Starting to Come Back to Earth

By most accounts, in the last year, housing demand has been substantially outpacing supply. According to Redfin’s Housing Demand Index for July, however, the ongoing supply shortage is starting to have an adverse effect on demand.

Redfin’s Demand Index for July 2016, based on thousands of customers requesting home tours and writing offers, increased over-the-month by nearly 6 percent in July up to a reading of 94 (with 100 being average)—driven by the number of customers requesting home tours, which jumped by more than 14 percent over-the-month and nearly 16 percent over-the-year.

The Demand Index was down by 14 percent over-the-year in July, however. Inventory dropped by 7.7 percent over-the-year in July across the 15 markets tracked by the Redfin Housing Demand Index, marking the 14^th straight month of over-the-year declines in supply. The ongoing shortage in the number of homes for sale continues to cinch homebuyer demand, according to Redfin.

One notable factor when comparing July 2016 with July 2015 is the fact that there were more weekend days and fewer business days in July 2016 compared to last year, meaning there was more weekend time for customers to tour homes.

“Buyers continue to be persistent when it comes to giving homes a shot, checking out what's coming on the market despite new inventory being few and far between,” said Redfin chief economist Nela Richardson. “But strong tour growth isn't translating into offer growth, so we'll likely see a second lackluster month for sales in August.”

Demand was down over-the-year in 11 of the 15 metro areas covered in the Index, with the largest decline occurring in Oakland (57.6 percent). Interestingly enough, the largest annual increase in demand occurred just a few miles away from Oakland in San Francisco (54.8 percent). The largest monthly decline in demand occurred in Boston (30 percent) while the largest over-the-month increase in demand occurred in San Diego (30.1 percent).