Lack of Inventory Holding Back Sales

For the first time since November, pending home sales decreased in March 2023 according to the National Association of Realtors (NAR) Pending Home Sales Index (PHSI). 

Of the four major regions of the country, three regions posted monthly losses with only the South increasing during the month. On a year-over-year basis all four major regions posted yearly declines in transactions. 

A forward-looking indicator of home sales, the PHSI was set to an index level of 100 in the year 2001. Currently, the PHSI dropped 5.2% in March to a level of 78.9. Year-over-year, pending transactions dropped by 23.2%. 

"The lack of housing inventory is a major constraint to rising sales," said NAR Chief Economist Lawrence Yun. "Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally." 

According to the NAR, they are predicting the economy will continue to add jobs while mortgage rates will continue their slow drop. Housing starts will fall from last year by 7.3% in 2023, to 1.44 million, and then increase 6.9% in 2024, to 1.54 million. 

"Sales in the second half of the year should be notably better than the first half as job gains continue and more favorable mortgage rates are expected," said Yun. "Sales of new homes are already matching 2019 pre-COVID activity and are expected to increase in 2023, largely due to plentiful inventory in this segment of the market." 

With continued job gains and improving interest rates, NAR anticipates existing-home sales will steadily improve in the upcoming months but will still come up short on an annual figure. Existing-home sales will drop from the prior year by 9.3% in 2023, to 4.56 million, before increasing by 15.4% in 2024, to 5.26 million. Newly constructed home sales will increase from last year by 4.5% in 2023, to 670,000, due to more plentiful inventory in this segment of the market, and increase by another 11.9% in 2024, to 750,000. 

Median home prices are expected to stabilize by this year, with the median existing-home price decreasing 1.8% in 2023 to $379,600, but increasing 2.8% in 2024 to $390,000. The median new home price will be lower by 1.9% in 2023, to $449,100, followed by an improvement of 4.2% in 2024, to $468,000. 

Realtor.com Chief Economist Danielle Hale also commented on the report: 

“Data on contract signings show that home shoppers submitted successful offers on homes at roughly the same pace as January and February despite continued ups and downs in mortgage rates. Despite a small slip, March existing home sales data reinforced the notion that January may have been the low point. Because contract signings are an early stage in the home sale process, today’s index further solidifies that idea and gives some sense of what the recovery might look like. If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb.” 

“In this environment, we’re seeing more regional variation. These patterns align with recent sales, price, and rental trends that highlight greater real estate activity in the more affordable Northeast and Midwest. Similarly, the markets that top the Spring 2023 Wall Street Journal/Realtor.com Emerging Housing Markets Index, such as LaFayette-West LaFayette, Indiana and Bloomington, Illinois are overwhelmingly in the affordable Midwest.” 

“We’re past mid-April’s Best Time to Sell nationwide. Potential sellers in just 3 markets–Memphis, Tennessee-Mississippi-Arkansas, Birmingham-Hoover, Alabama., and Indianapolis-Carmel-Anderson, Indiana–have until early May for prime conditions. This doesn’t mean the opportunity to sell is gone, but rather in this year’s slower moving housing market, homeowners who are later to list may find themselves needing to price competitively to stand out and attract a buyer among what is typically a growing number of sellers.” 

“For buyers, we’re past the season that has historically been the most competitive. In a typical year, we would expect to see the number of homes for sale begin to climb more significantly from this point forward. However, homeowners continue to be a bit hesitant to sell for a variety of reasons, so the seasonal shift in favor of buyers may not occur as quickly this year."