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Real Estate

Is the housing market heading toward an inventory downturn?

Expert says September inventory trends foreshadow even lower supply levels as early as 2020

The inventory of homes for sale in the U.S. continued to decline in September, signaling the market may be heading toward an overall shortage, according to a Realtor.com report.  

During the month, the national inventory of homes for sale fell 2.5% from the previous year, and at a much faster rate of decline compared to August’s 1.8% decrease.

September’s retreat can likely be attributed to heightened homebuyer demand, which has increased substantially thanks to the nation’s low-interest-rate environment.

As rates continue to drop week by week, Realtor.com says the amount of homes available for both entry-level and mid-market buyers continues to dry up.

“Buyers looking for their next home have faced the headwinds of tight inventory and a competitive market this year,” said George Ratiu, Realtor.com’s senior economist. “While lower mortgage rates and the arrival of Fall promised a reprieve, conditions continue to tighten as demand remains strong.”

September inventory trends, especially in the mid-market, may foreshadow whether or not the housing market is headed towards even lower supply levels in early 2020, said Ratiu.

According to Realtor.com, the number of entry-level homes priced below $200,000 dropped 9.8% in September, whereas the amount of mid-market homes experienced no additional growth during the month.

“The mid-tier of housing represents nearly 60% of homes for sale on the market, making it a solid indicator of how tight inventory levels are in the U.S.,” Ratiu said. “After more than a year and a half of solid growth in this segment, we’re seeing inventory levels stall out and flat-line. If, or better yet, when inventory in this segment begins to take a downturn, the vast majority of homebuyers are going to feel its effects as their options rapidly dwindle.”

Homebuyers may feel these effects in their wallets, as the lack of affordable entry-level and mid-market homes means heightened market competition.

This intensified competition could lead to an uptick in home prices, which already seems to be happening in the market.

In September, the median U.S. home list price came in at $305,000, 4.3% higher than this time last year. That being said, price growth is slower than last September, when the median list price grew by 7.3%.

Nevertheless, heightened competition could impact all segments of the market, even the upper-tier price range.

Although homes listed over $750,000 grew by 4.7% year over year in September, Realtor.com warns that intensified demand could lead to inventory declines as early as February 2020.

These supply declines, coupled with a growing affordability crisis, could price out even the nation’s wealthiest homebuyers.

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