Real Estate

Opinions conflict: Will low inventory hold back future home sales?

Experts weigh in on existing home sales report

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The latest report from the National Association of Realtors shows existing home sales increased to a decade-high, however that pace is unsustainable, or so say some experts – others disagree.   

While existing home sales did increase, housing inventory did not. Inventory fell 6.6% from last year and rests at a 3.8-month supply.

Because of this drop in inventory, competition among homebuyers is fierce, and the high rate of home sales is unsustainable without a drastic increase in homes for sale.

“The pace of sales we saw in March is unsustainable,” Redfin Chief Economist Nela Richardson said. “Sales may be soaring, but inventory isn’t. Sellers are off to a slow start this year, as the number of homes newly listed in March fell 0.7% from last year.”

One economist agreed that housing inventory is holding back home sales, but said he expects existing home sales to trend upward this year.

“While there was a small seasonal rise in the number of homes for sale, they are still 6.6% below year-earlier levels and remain an impediment to a stronger pace of sales,” Nationwide Chief Economist David Berson said. “We expect existing home sales to trend higher over the course of 2017 despite modestly higher mortgage rates in response to solid job gains, faster income growth, and a pickup in household formations.”

In fact, Berson pointed out even the increasing home prices caused by the competitive market could lead to more homeowners putting their house on the market.

“The fast pace of house price gains, while negative for affordability, will reduce the number of homes that are still underwater, that is, those with a mortgage amount greater than the value of the home, and so should allow for a modest increase in homes for sale this year – but not enough to boost sales significantly or to slow the pace of house price gains meaningfully,” he said.

As homeowners slowly start to list their homes, responding to the rising demand, one expert explained this could create a late peak in home sales this year.

“Redfin is just now starting to see a late-season lift in the number of homeowners interested in listing,” Richardson said. “As such, we expect sales to peak late this year, meaning a slower-than-normal June/July and a strong August/September.”

But not everyone is on board with that sentiment.

“Existing home sales delivered an upside surprise in March, reaching their highest level in almost a decade,” said Ed Stansfield, Capital Economics chief property economist. “Yet that rise needs to be seen in the context of the previous month’s sharp drop and sales are unlikely to post further material gains over the rest of the year.”

Whereas one expert points out that housing inventory has been low for a while now, and hasn’t seemed to stop homebuyers thus far. She says to continue to expect a strong spring home-buying market.

“A strong annual increase in existing home prices suggests that lower-priced, entry-level homes of the kind likely to be sought by first-time buyers are increasingly scarce, with those that do come up for sale attracting intense competition,” Zillow Chief Economist Svenja Gudell said.

“Existing home sales have beat consensus expectations in five of the past seven months, and at this point the market’s strength shouldn’t be a surprise,” Gudell said. “Demand is high, inventory is low, prices are rising and competition is fierce — the same trends that have been driving the market for at least the past year, and will continue to do so throughout the remainder of this spring shopping season.”

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