May 22nd, 2014
Although the housing recovery has generally produced good news regarding the U.S. residential real estate market, inventory has been one area where the market has not performed well.
Of course, this is both a positive and negative fact. A lower inventory can indicate that sales are occurring at a rapid pace, thereby hinting that buying conditions are favorable to consumers. On the other hand, this can also mean that fewer people are listing their properties and the pace of new single-family home construction is not keeping up with demand. For first-time homebuyers in particular, low inventory presents a challenge because they have a harder time winning a bidding war in a competitive market.
According to HousingWire, low mortgage rates have been one double-edged sword in the housing market. While they have presented an opportunity for homebuyers to cash in on more affordable financing in recent years, they have also encouraged many current homeowners to refinance their mortgage rather than sell their property. Through refinancing, they can keep their low rate if average interest increases.
There are also many homeowners who are still underwater, and some of them haven’t been as excited about a short sale following the Dec. 31, 2013 expiration of the Mortgage Forgiveness Debt Relief Act. Furthermore, REO sales have been slow.
Employment is a key to expanding inventory
Frank Nothaft, vice president and chief economist of Freddie Mac, said that continued growth in the job market is necessary if supply and demand are to balance.
“Housing needs stronger, and just as important, sustained levels of job creation to get the housing engine firing on all cylinders,” he said. “April’s jobs numbers were encouraging, and nothing will solve the supply and demand factors faster than keeping employment growth going.”
The government sponsored enterprise predicted that 2014 will yield an annual growth rate of 5 percent for new home construction, and household formations will continue to rise as long as employment increases.
Where to find homes
Like all aspects of the housing market, inventory levels tend to vary across the country. According to Zillow, several metro areas have actually seen noticeable increases in their numbers of available homes. Las Vegas, for instance, saw a 34 percent rise year over year in April. Conversely, Houston saw a 27 percent decline.