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Low Inventory Continues to Impact the Market

Housing inventory is tightening, and affordability is falling, so how will the industry react? Freddie Mac’s monthly Outlook for April took a look at how the dwindling inventory will impact home sales through spring.

"Tight housing inventory has been an important feature of the housing market at least since 2016,” said Sean Becketti, Chief Economist, Freddie Mac. “For-sale housing inventory, especially of starter homes, is currently at its lowest level in over ten years. If inventory continues to remain tight, home sales will likely decline from their 2016 levels. As we enter the spring home buying season, all eyes are on housing inventory and whether or not it will meet the high demand."

The Outlook ties the small inventory to the fact that many potential sellers simply aren’t selling out of fear of not being able to afford a new home. Moving may mean losing their low mortgage rates, which were locked in after the crisis. Many homeowners may fetch less than they owe for their homes due to the market still recovering from the crisis.

The historical average of home starts is 1.36 million, and Freddie Mac predicts that the average in 2017 will only be 1.26 million, though this is still higher than 2016, at 1.17 million. With the small inventory, homes are staying on the market for an average of just three months, a little below the historical average of 5.3 months. An efficient market in terms of quick turnaround time means that there may not be a cause for concern, but the low inventory is still concerning, says Freddie Mac. Currently, there are half as many homes for sale as there were in 2007.

Meanwhile, home prices have been on the rise, pushed by rising inflation and falling unemployment. Unemployment has continued to stay low, dropping to 4.5 percent, the lowest rate in a decade. Higher rates and prices cause affordability concerns, says Freddie Mac, and will characterize the rest of 2017.

Read Freddie Mac's Outlook here.

About Author: Seth Welborn


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