Photo: Robert Clark
Declining inventory has been the breakout star of the 2017 US housing market so far, bringing with it sluggish sales and rising prices.
The country’s inventory crisis is also the driving force behind the widening gap between potential sales and actual sales, according to a report released earlier this week by First American — a provider of title insurance and settlement services to the real estate and mortgage industries.
Potential existing-home sales increased 0.2 percent from the previous month to a seasonally adjusted annualized rate (SAAR) of 5.82 million in July. This is nearly 94 percent above the low point recorded in December 2008 during the Great Recession.
Potential existing-home sale levels are now 9.3 percent below the pre-recession peak recorded in July 2005.
Meantime, First American says that the market for existing-home sales is currently underperforming its potential by 4.7 percent, or an estimated 273,000 (SAAR) sales.
“Just a few months ago, the difference between the actual level of existing-home sales and the market’s potential was negligible, but supply issues have become a significant impediment and are preventing the market from reaching its potential,” says Mark Fleming, chief economist at First American, in a media release.
First American’s “potential sales model” calculates what it estimates a healthy market level of sales should be based on economic, demographic and housing market backgrounds.
The underperformance gap between actual and potential existing-homes for sale has been widening recently due to declining inventory levels in many markets, according to Fleming.
National inventory of existing-homes for sale fell 9 percent from last year in July, as BuzzBuzzNews recently reported. The number of existing homes for sale has fallen for the last consecutive 26 months, according to data from the National Association of Realtors.
At the same time, construction of new homes continues to lag behind increasing demand, adds Fleming. The pace of new construction needs to pick up significantly to both meet demand levels and reduce inventory challenges.
According to Census data, the number of new households grew by nearly 6 million since 2009, but only 3.5 million new homes have been built over that period — creating a shortage of nearly 2.5 million homes.
The shortage of homes for sale is impacting first-time buyers the most.
“Millennials are entering the housing market, but are confronted with very few entry-level homes to buy,” says Fleming in the release.
And, with inventory falling and demand on the rise, price appreciation is accelerating fast. Housing affordability was down 10.2 percent in June from last year, according to First American’s Real House Price Index.
Click here to read the entire report.