The latest Existing Home Sales Report issued by the National Association of Realtors (NAR) revealed that home sales have decreased for four consecutive months and are at their slowest pace in over two years. This has some industry leaders puzzled considering the fact that the economy is strengthening, unemployment is down, and wages are beginning to rise. This begs the question: “Where are the buyers?”
Actually, as other active agents would agree with me, we are definitely seeing strong desire from our prospective buyers who are ready to go if the right houses come on the market. Most agents claim it is not a shortage of demand, but is instead a shortage of inventory that is causing the market to soften.
A few of my clients tend to agree as well.
Why is there a shortage of inventory?
You only need to look at the graph below to understand:
New construction sales over the last ten years are far below historic numbers from 1995-2002.
A recent industry report looked at building permits and concluded:
“If construction over the past decade matched historic norms, accounting for population change, the country would have had 2.3 million more single-family home permits.”
That decade of not building enough homes is the primary reason for the concerns about today’s market.
Wait, weren’t we talking about ‘existing’ home sales?
Some may argue that NAR’s sales report deals with existing home sales and not new construction, and they would be correct. However, reports have shown that one of the main reasons why existing homeowners are not selling is because they can’t find homes that meet the needs of their current lifestyles. Historically, the upgrades in a newly constructed home were the answers to those needs.
Over the last decade, however, there were fewer homes built to satisfy this move-up seller. Most buyers nowadays are very much influenced by HGTV's various home-flipping shows, and couple that with their busy lifestyles, everyone is looking for turn-key properties. Consequently, there are many homeowners who stayed in their homes for a longer tenure, instead of putting their homes up for sale.
Bottom Line
As more new homes are being built, there will be more housing inventory to satisfy current demand which will cause prices to moderate and sales volumes to increase.
This begs another question: "When will this happen?" A topic for another day.