So far this year, the U.S. housing market has had a reprieve from shortages and bidding wars, brought about by decreasing competition, increasing listings, moderating price gains, and growing sales. But it looks like that’s about to change.
A housing shortage appears to be possible in the near future. This shortage would be similar to the one in 2017 and the first half of 2018, which ramped up competition and caused price gains to skyrocket. According to data from Realtor.com, after increasing in the second half of last year, housing supply will likely drop and could hit a new low.
The stats shows that in June, the number of U.S. homes for sale was up 2.8% annually, which represented a decline from the 2.9% gain in May. So far this year, inventory gains have been slowing, decreasing from the 6.4% growth in January to a 5.8% increase in February.
Throughout spring, gains continued to slow, and experts predict supply will plateau over the next few months. It’s possible that the housing inventory could see its first decline this October.
Speaking to CNBC, chief economist at Realtor.com, Danielle Hale explained:
“It was only 18 months ago that the number of homes for sale hit its lowest level in recorded history and sparked the fiercest competition among buyers we’ve ever seen. If the trend we’re seeing continues, overall inventory could near record lows by early next year. So far there’s been a lackluster response to low mortgage rates, but if they do spark fresh buyer interest later in the year, U.S. inventory could set new record lows this winter.”
Decrease in Homes for Sale
Part of the problem is fewer owners are listing their homes for sale, and this seems to be occurring for a few reasons. According to Hale:
“[It’s] a combination of rate-lock, recently decreased consumer confidence, and older generations choosing to age in place.”
Although mortgage rates are currently down, many homeowners took advantage when rates were even lower by refinancing their mortgages at that time. If they were to move now, these homeowners would end up paying more for the same mortgage, as well as paying for an upgrade in a home. Even those who are looking to downsize would find themselves paying more in this market.
According to information from the financial services company CoreLogic, while home price gains were decreasing, they have increased again for the first time in 14 months this June.
Frank Nothaft, chief economist at CoreLogic, told CNBC:
“Interest rates on fixed-rate mortgages fell by nearly one percentage point between November 2018 and this May. This has been a shot-in-the-arm for home sales. Sales gained momentum in May and annual home-price growth accelerated for the first time since March 2018.”
Local Home Inventory Can Vary
Home inventory often depends on the local market. Data from Redfin shows that inventory is lowest in some of the most affordable markets in the country. The company tracked 46 major markets in the U.S. and found that inventory decreased in June annually for the first time since last September.
For example, affordable markets like Pittsburgh, Oklahoma City, and Memphis experienced double-digit decreases in the number of homes for sale. More expensive markets like Boston, San Jose, and Seattle continued to see inventory gains.
Daryl Fairweather, Redfin’s chief economist, told CNBC that lower rates are not enough to quell competition in the U.S. housing market:
“Lower interest rates are bringing buyers back, but without enough homes for sale to meet demand, we expect to see more bidding wars, which will push prices up this summer. We expect small, inland markets where a typical home is still affordable for a middle-class family to heat up the most.”
Although 2019 has seen a more moderate market up until now, the data points to a future shift with increased competition due to fewer homes for sale and higher demand. While there are similar trends across the nation, the effects on local real estate will vary with more affordable markets likely feeling an even bigger squeeze.