The inventory shortage is an issue in the U.S. housing market everyone can agree on. A recently released survey by Trulia proposed top theories that directly correlate to the inventory shortage. The results determined which theories are factual, or simply fiction.
The theories tested included markets with a higher share of investors, a bigger recent price increase, and a larger increase in price spread. To determine markets with greater inventory, the theory behind markets with more home building was considered.
The survey used multiple linear regression methods to estimate the impact of each of the major explanations for inventory while taking into account the effect of the other explanations. So what myths were confirmed, and which were busted?
First myth answered was that markets with more homes owned by investors have lower inventory due to investors sitting on homes and renting them out. This was in fact confirmed. According to Trulia, every percentage-point increased in housing stock owned by investors was correlated with inventory that was 2.8 percent lower.
The second and third low inventory myths are due to a more challenging trade up, markets where premium homes are far more expensive than starter homes. Also, markets that have seen big price increases have lower inventory due to homes becoming unaffordable. These myths are busted; neither rising prices nor spreads among homes had a significant impact on inventory.
Final myth tested had the largest impact overall. The theory was that markets with more home building would have more housing inventory. According to the data, this myth was confirmed. The fact was that for every percentage-point increase in a market’s housing stock, inventory increased approximately 13 percent.
To view all the information from Trulia’s survey, click here.