Here’s why the housing market continues to struggle with low inventory
And what it will mean for home sales in 2017
Tight housing inventory supply could put a strain on this year’s spring home-buying season, according to the monthly Outlook released Tuesday by Freddie Mac.
The low supply of inventory continues to push home prices up as they outpace rising incomes. Rising home prices combined with higher interest rates caused affordability to decrease in March.
“Tight housing inventory has been an important feature of the housing market at least since 2016,” Freddie Mac Chief Economist Sean Becketti said. “For-sale housing inventory, especially of starter homes, is currently at its lowest level in over ten years.”
“If inventory continues to remain tight, home sales will likely decline from their 2016 levels,” Becketti said. “As we enter the spring home-buying season, all eyes are on housing inventory and whether or not it will meet the high demand.”
Freddie Mac outlines four reasons why housing inventory remains low. They are:
1. Fear of low inventory
One of the main reasons for low inventory, is, ironically, the fear of low inventory. Homeowners are hesitant to put their home on the market as they are unsure if they will be able to find a new home in their budget once they sell theirs.
2. Mortgage rates
As mortgage rates rise, homeowners are less likely to put their homes up for sale because they don’t want to forfeit their current low interest rate.
3. Home prices
While home prices are high, in some areas they are not quite back to their pre-crisis levels. Because of that, homeowners are unable to sell their home for enough to pay back what they currently owe.
4. Housing starts
Housing starts were a disappointment in March as the annual rate of housing starts slipped nearly 7%. And housing economists explained this lackluster growth won’t be enough to meet the rising demand. Freddie Mac’s report explains the projected 1.26 million starts for 2017 will not be enough to cover the needed 1.7 million new housing units.
And this tight inventory will pull down home sales for the year. Freddie Mac predicts home sales will come in at 5.9 million in 2017, falling from 5.97 million in 2016, which was housing’s best year in a decade.