Two states where housing inventory is actually increasing
While the U.S. housing supply has been lower for months than the six-month supply considered “normal” by economists, there are signs of a turnaround in two states in particular, Florida and California.
According to Trulia, 21 of the 100 largest markets have seen supply increases in the past year, with some showing double-digit gains. Half of those 21 markets are located in California or Florida.
In fact, four markets have seen rising inventory for at least three consecutive quarters, which include: San Francisco, California; Bakersfield, California; Sarasota, Florida; and West Palm Beach, Florida.
“Nothing is permanent. Not even low inventory,” Trulia’s chief economist Ralph McLaughlin says.
Even in sought-after markets like Denver there was a 2.8 percent increase to 7,426 homes for sale in the third quarter of 2016 from 7,225 homes in the same period last year, according to Trulia.
“With notoriously stingy markets like San Francisco, San Jose, and Denver showing signs of picking up after prolonged periods of declining inventory, homebuyers in these markets are beginning to see a break in gridlock and should experience more choice in the months ahead,” says McLaughlin.
Squeeze on Affordability
These are bright spots in an overall tight market that’s putting pressure on already rising prices. Trulia reported that U.S. home inventory fell for the fifth straight quarter for the three months that ended in September.
Total housing supply, including starter, trade-up, and premium homes for sale, fell 6.7 percent to 1.25 million homes in the third quarter of this year compared to the same period last year.
“The persistent and disproportional drop in starter and trade-up home inventory is pushing affordability further out of reach for homebuyers,” according to Trulia.
The White House recently chimed in about housing affordability in a “Housing Development Toolkit,” released in September, a 22-page white paper that encourages municipalities to modernize or reduce “barriers” to housing development, such as zoning.
“In a growing number of metropolitan areas, the returning health of the housing market and vibrant job growth haven’t led to resurgent construction industries and expanding housing options for working families, due to state and local rules inhibiting new housing development that have proliferated in recent decades,” the White House report states.
Included in the report’s several policy recommendations are taxing vacant land, as cities in Florida, California, Illinois, and Michigan do, and encouraging density bonuses to construct a greater number of market rate units that would otherwise be allowed, such as in California.
The White House states that following these policies would not only help the economic development of communities but also encourage more housing developments.
The National Association of Realtors® reported on October 20 that total housing supply has fallen year-over-year for 16 straight months. At the end of September, existing homes available for sale rose 1.5 percent to more than 2 million units, which is 6.8 percent lower than a year ago. Unsold inventory is at a 4.5-month supply at the current sales pace, which is down from 4.6 months in August.
Job gains and low mortgage rates may be boosting homeownership demand, but the end of the hot summer market and a lack of new home construction may put a damper on inventory, Lawrence Yun, NAR’s chief economist, says.
“Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in,” Yun says.
But there were some buyers who were able to snag homes that were available at the start of fall. In particular, first-time homebuyers boosted sales of existing homes in September, the NAR reported. Existing-home sales increased 3.2 percent from August to 5.47 million homes.
“Most families and move-up buyers look to close before the new school year starts. Their diminishing presence from the market toward the end of summer created more opportunities for aspiring first-time homeowners to buy last month,” adds Yun.