No Relief for Tight Housing Supply Quite Yet

If those in the industry were hoping that the National Association of Realtors’ November 2016 Existing-Home Sales report would bring good news as far as housing inventory, it did not happen.

NAR reported that the number of existing-homes for sale fell over-the-month in November by 8 percent down to 1.85 million. Over-the-year, inventory is down by 9.3 percent (from 2.04 million in November 2015), and has declined for 18 consecutive months.

Not only that, but unsold inventory declined from a 4.3 month supply in October down to a 4.0 month supply in November, according to NAR.

“Existing housing supply at the beginning of the year was inadequate and is now even worse heading into 2017,” NAR Chief Economist Lawrence Yun said. “Rental units are also seeing this shortage. As a result, both home prices and rents continue to far outstrip incomes in much of the country.”

Realtor.com Chief Economist Jonathan Smoke stated, “Consumers should be aware that the overall supply of homes for sale remains very low, and pent up demand is leading to large jumps in price acceleration. The number of homes for sale is down 11 percent compared to a year ago, and median prices are up 7 percent. On top of that, December is tracking to an even bigger decline.”

Smoke continued, “Buyers planning to purchase in 2017 will contend with even more limited supply, while they also race against the prospect of mortgage rates reaching levels we have not seen since 2010. The good news is that rates are rising because of continued economic growth, and many households should see income gains in 2017. However, those gains are not likely to be higher than the combined effect of higher prices and higher mortgage rates.”

The news of the even shorter supply of housing did not dampen the headline numbers for existing-home sales, which in November had their best month in nearly 10 years. Existing homes sold at an annual pace of 5.61 million in November, the highest rate since they sold at a 5.79 million clip in February 2007. November’s pace was also an increase of more than 15 percent from the previous November, when existing homes sold at an annual rate of 4.86 million.

Further, distressed sales including foreclosures and short sales rose to 6 percent in November from the month prior, but this was still a decrease from 9 percent a year ago. Additionally, NAR found that foreclosures sold for an average discount of 17 percent below market value in November, while short sales were discounted 16 percent.

“The healthiest job market since the Great Recession and the anticipation of some buyers to close on a home before mortgage rates accurately rose from their historically low level have combined to drive sales higher in recent months,” Yun said. “Furthermore, it's no coincidence that home shoppers in the Northeast—where price growth has been tame all year—had the most success last month.”