Low inventory makes for higher prices A major roadblock to homes sales has been low inventory, economists say.
Buyers want to tour 10 houses. Not two. Faced with a small pool of housing options, families are reluctant to make one of the biggest purchases of their lifetime.
Just how low is housing inventory? Data released Friday showed that there were 1.9 million existing homes for sale at the end of January, just about matching the average level in 2000, according to the National Association of Realtors. But the population has grown over that time period, rising by 34 million, or 12%, to 316 million in 2013 from 282 million in 2000.
Given that prices have zinged up more 10% over the past year, it’s somewhat surprising that inventory isn’t higher. What’s happening is that some sellers are waiting until prices rise even further, said Stephen Stanley, an economist at Pierpont Securities.
“It’s a gradual process. It’s not something that happens all at once, particularly given the depths to which prices fell during the bust,” Stanley said.
In addition, some sellers don’t want to compete with foreclosed and other distressed properties that sell low.
A tough labor market is also holding back the inventory of homes available for sale, said Jennifer Lee, a senior economist with BMO Capital Markets. When there are better employment prospects and career opportunities, more sellers will be willing and able to pursue jobs that require a move, and put their homes on the market.
“Until those other jobs come up, they are going to stay put. That holds people back,” Lee said.
Low inventories make it tough for young families, a key chunk of the housing market, to buy a home. According to NAR, first-time home buyers accounted for a record low of 26% of existing-home purchases in January, down from 30% a year earlier, and below a normal level of 40%. The data go back to 2008. High student debt is hurting sales, and homeownership rates for young adults are dropping.
–Ruth Mantell