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How is Low Inventory Affecting the Housing Market?

house-sittingon-money1-300x198Low inventory has been cited by many analysts as a concern for the housing market in 2016 as the market continues to heal from the foreclosure crisis which began nearly eight years ago.

What effect will that lack of inventory have on housing? While the inventory has been declining, demand for housing has not; the combination of thin inventory and strong demand has pushed prices upward. In many markets, the percentage of homes selling at list price or higher is has risen back to pre-crisis levels, according to Shu Chen, Economist with CoreLogic.

“The number of homes selling at or above list price has recovered to early 2006 levels,” Chen wrote on CoreLogic’s blog. “That number was 3.5 times the trough in January 2008 and represented more than one-quarter of total sales in October 2015. Compared with homes selling for their list price or more, the number of homes selling for less than list price has been relatively stable over the past 15 years. Regardless of market conditions, there are always highly motivated sellers willing to drop their price.”

Stewart Guaranty Chief Economist Ted Jones told DS News in January that limited housing inventory was creating an urgency to buy.

2-3 CoreLogic graph 2“We always think that six-month inventory is normal for existing homes,” Jones said. “We’re in that mid-four-month inventory range. We know that rents are going to continue to rise. You have the option of either renting or owning. Rents have actually been going up while interest rates have stayed the same or even going lower.”

While existing-home sales in 2015 experienced their best year since 2006, a repeat in 2016 is unlikely if inventory remains at its current levels.

“Although some growth is expected, the housing market will struggle in 2016 to replicate last year's 7 percent increase in sales,” NAR Chief Economist Lawrence Yun said. “In addition to insufficient supply levels, the overall pace of sales this year will be constricted by tepid economic expansion, rising mortgage rates and decreasing demand for buying in oil-producing metro areas.”

According to Fannie Mae Chief Economist Doug Duncan, single-family starts should accelerate to 17 percent this year. But only, he said, “if easing housing supply shortages and a continued strong pace of household formation pan out.”

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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