Photo: Gabe Shore/Flickr
Housing inventory in the US is at its lowest level in over 10 years, driving home prices up across the country. Why is inventory so low? Freddie Mac outlined four of the primary reasons in a monthly report published this week.
The number of homes for sale in February 2017 was 1.8 million, well below the historic average of 2.5 million from 1985 to 2015, according to data from the National Association of Realtors. The number of months of supply of existing one-family homes was 3.8 months in February of this year, compared to the historic average of just over 5 months. Housing starts are generally a good economic indicator and dropped in February to 1.28 million, down from the historic average of 1.36 million.
“Tight housing inventory has been an important feature of the housing market at least since 2016,” says Freddie Mac Chief Economist Sean Becketti. He added that starter home inventory was especially tight, while the overall supply of homes for sale is currently at its lowest level in over 10 years.
According to Freddie Mac, the reasons for the overall lack of for sale homes are:
While home prices have continued to climbed upwards, wage growth has not kept up. And many homeowners fear that they won’t be able to find a home that they both like and can afford. This fear has many homeowners staying put in their homes longer than previously seen, says Freddie Mac.
2. Mortgage rate increases
As mortgage rates have moved upwards in recent months, there may be borrowers unwilling to part with the extremely low rates they secured after the financial crisis for a higher one. Selling and moving would mean a new loan, and a new higher interest rate.
3. Rising home prices
While home prices have increased, for many homeowners they have still recovered fully to the levels seen before the financial crisis 10 years ago. Selling their home now could mean they would get less for their home than they currently owe on their mortgage.
4. Disappointing housing starts
Housing starts were a disappointment leading into March, prompting many experts to conclude that there will not be enough homes for sale in 2017 to cover the need — only 1.28 million starts were recorded as of February, and an estimated demand for 1.7 million homes by the year’s end.
“If inventory continues to remain tight, home sales will likely decline from their 2016 levels,” Becketti says. Freddie Mac predicts home sales in 2017 will come in at around 5.9 million, down from the 5.97 recorded last year.
Becketti adds that all eyes are would be on housing inventory and whether or not it will meet the high demand as we enter the spring homebuying season.
Click here to read the entire report.