Is Low Inventory Fueling a Seller’s Market?

It’s no secret that for-sale residential housing is in short supply around the country. With that being the case, do homeowners even have any motivation to sell their homes?

First off, just how tight is inventory? In the August existing-home sales report, National Association of Realtors (NAR) reported that total existing housing inventory at the end of August was at 2.04 million units, down by 10 percent over-the-year. August represented the 15^th straight month of year-over-year declines.

In August 2016, which is usually the peak inventory month in any given year, Realtor.com reported 1.7 million active listings—down from 1.9 million in August 2015 and from 2.1 million in August 2014.

A Realtor.com survey revealed that the top motivation for selling home was the seller’s desire to live in a different neighborhood (42 percent), while 21 percent said they wanted a bigger home and 19 percent said they wanted a smaller home. Additionally, 19 percent said they needed to lower their cost of living and 15 percent said retiring was their main motivation to sell. According to Realtor.com, lowering the cost of living and retiring are the categories that saw the biggest increases from last year.

“This is a good sign that more homeowners may be motivated in the year ahead to sell their homes,” Realtor.com chief economist Jonathan Smoke said. “A lack of inventory has been the biggest problem buyers faced for most of the past year.”

Homeowners are facing a dilemma, however. Approximately 85 percent of sellers said they intend to buy a home after they sell theirs, which puts them in the same situation as homebuyers all over. According to Smoke, this is the classic chicken-or-egg situation.

“Buyers can’t find a home because there aren’t enough on the market (which is also driving up prices), but sellers, while motivated by the higher prices, can’t sell because they’re afraid that they’ll end up homeless,” Smoke said. “Meanwhile, new home construction is growing but not enough to ease the logjam.”

While the motivation to sell may be there, recent data indicates that potential homebuyers are becoming less confident. Fannie Mae’s Home Purchase Sentiment Index (HPSI) for September found that buyer confidence has pulled back for two months in a row after peaking in July.

“Downside changes came in particular from the HPSI components mortgage rate direction and good time to buy a house,” Duncan said. “In addition, the starter home tight supply and rising home prices as well as the unsettled political environment are likely giving many consumers a reason to pause or question their home purchase sentiment.”