Seeds of a Housing Shortage

The market is looking much improved today, with home sales and prices heading up. But within this improvement are the seeds of a long-term challenge: falling inventories.

The inventory of existing homes is at its lowest level in seven years, while newly constructed home inventory has hit a 50-year low mark. Falling inventory is causing home prices to shoot up higher and faster than most analysts anticipated. The national median price of transacted homes was up 9.5 percent in August.

As winter approaches, inventory will slide further. Few homes are newly listed after Thanksgiving. Historically, inventory tends to be 15 percent lower in winter than summer. Last year’s seasonal decline was even more dramatic, at 25 percent.

Distressed home listings will continue to fall because fewer borrowers are now seriously delinquent. Home construction is up, but only reaching half of the historic average of housing starts. Even the many pent-up sellers－those normal, nondistressed home owners who’ve been holding back for better market conditions－will not help the net inventory situation, because most of them will be selling to buy a trade-up property.