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Tight Inventory Squeezing Housing Market

April 18 – Freddie Mac released its monthly Outlook for April, which was headlined “Where Have all the Houses Gone?” The report focused on how the tight housing inventory will affect home sales during the spring homebuying season.

“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 10 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 report found that low inventory has caused home prices to outpace incomes. With interest rates headed higher, affordability has declined, putting a pinch on prospective homebuyers.

For-sale housing inventory, especially of starter homes, is currently at its lowest level in over 10 years.

Freddie Mac found two reasons for the lower inventory:

o             Many homeowners are not selling their homes for fear of not being able to find another home they like and that falls within their budget.

o             Some borrowers do not want to let go of the extremely low mortgage rate they currently have.

Additionally, home prices have still not recovered to their pre-crisis levels for many homeowners and selling their homes would fetch them less than the amounts they owe on their mortgage. Housing starts were 1.17 million for 2016 and are projected to be 1.26 million for 2017, well below the historical average of 1.36 million and the approximately 1.7 million additional housing units the U.S. economy needs to add to replace existing stock, meet new household formation and second home demand.

Because of the tight inventory, Freddie Mac projects home sales to decrease to 5.90 million in 2017, failing to build on the momentum of 2016, which was housing’s best year in a decade.

 

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