Q: We live in an area where home values are rising. It’s not uncommon for a property to have multiple offers. Our broker says there’s an inventory shortage. Given rising prices, why don’t more owners want to sell?
A: Real estate brokers like to see a goodly number of homes on the market so that buyers have a wide selection of choices. In August, according to the National Association of Realtors (NAR), 1.86 million existing homes were available for sale, about a 4.1 month supply.
For context, NAR tells this column that during the period from August 2010 through August 2019, there were typically 2.16 million homes for sale, a 5.3-month supply.
Whether a given volume is “good” or “bad” depends on your perspective.
If you’re a seller, less inventory is a bonus. With less supply, buyers are likely to bid up prices.
If you’re a buyer, more inventory means lots of houses, no need to hurry, fewer multiple bids, and less pressure to push up values.
The real question is whether a lot more inventory will soon enter the market. The answer is likely to be no.
First, the national inventory figures are a convenient way to consider national real estate patterns. But, real estate is a local commodity. You can expect to see little available inventory in hot markets and gobs of homes for sale in slow areas.
Second, more than 5.2 million homes were at least 25% underwater as of May. The owners of such properties can’t sell because they will not get enough money at closing to pay off their existing mortgages. Inventory levels are being held down as a result.
Third, rising home prices cuts both ways. NAR reports that the average existing-home price in September was $272,100, up 5.9% from a year earlier. “September’s price increase marks 91 straight months of year-over-year gains,” said NAR.
Owners who sell today may be forced to pay an equal or higher price for a replacement property. Add in the cost of new financing, closings, and moving expenses and some owners, no doubt, are happy to stay in place.
Fourth, we can increase inventory with more new home construction. However, significant new development is unlikely. NAR says the typical existing home sold for $272,100. According to the Census Bureau, the median new home was priced at $299,400 during the same month. If affordability is an issue for existing homes, it’s a greater issue for new homes and their higher prices.
A related problem stalling new home construction is a simple lack of workers. There were more than 375,000 construction job openings as of August, said the National Association of Home Builders.
Given these realities, it’s unlikely that the national inventory numbers will grow substantially but local inventory counts will vary.
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