Inventory Shortage Explained

Posted On April 20, 2017

A consistent theme amongst housing professionals this year and last has been “inventory shortage.”  With demand outpacing supply, houses are selling faster and at higher prices than earlier in the decade. 

According to the National Association of Realtors, from December 2016 to February 2017, less than four months’ supply of inventory was on the market.  How will this inventory shortage impact this spring’s home-buying season?

Bloomberg analysts explained the impact of the inventory shortage in four charts.  Here is the summary of their findings:

• Home Prices are Rising – higher US home prices will persist with tightened inventory. Homeowners will continue to build equity as prices appreciate.
• Price Appreciation Outpaces Income Growth – property values are increasing at a faster rate than the average buyer’s income. Income growth has slowed to the weakest pace in three years.
• New Houses are Coming, Slowly – while the obvious answer to meeting the demand is to increase the supply, new home construction has slowed. Starts of single-family homes are at the highest level in ten years, but construction takes time.  Home builders are also facing a tightened labor market.
• Buyers Holding Back – while the market has been advantageous for sellers, some buyers are choosing to hold back.

According to Freddie Mac, the tight inventory could put a strain on home-buying season.  For-sale housing inventory has dropped to the lowest level in over a decade.  Still, Freddie Mac predicts home sales will come in at 5.9 million in 2017, a slight decline from 2016’s 5.97 million. 

Sources: HousingWire, Bloomberg