Resale inventory is at the lowest level in more than 18 years and continues to decrease. New home construction hasn’t kept pace with demand, and the result is an inventory shortage at a time when demographic and economic indicators are moving upward for the housing market.
One way to measure for-sale housing inventory is with “months’ supply,” which shows how many months it would take to sell the available inventory at the current sales pace, as if no other homes came on the market, which is unlikely but it is a good snapshot to measure health.
The housing market is seasonal, so when comparing the data over time we look at these numbers for the same month of each year. In March 2018, the months’ supply was approximately 3.8 months measured across the country, which means it would take only 3.8 months to sell all the existing houses listed for sale at the March 2018 sales pace. The March 2018 supply was about the same level as in March 2017, but well below where it was during the Great Recession, and tighter than it was before the housing boom. By this measure, inventory is the tightest it’s been in over 18 years.
When we dig deeper into inventory at different price levels we see that inventory for entry-level homes is even tighter. Using the median price as the reference, we look at months’ supply for homes listed at different price points, for those homes listed at the entry-level (priced from 50 percent of median sale price up to 25 percent above) there was only a 3-month supply available for sale. There is more supply at higher price points – close to 7 months for homes listed for more than twice the median sale price.
Areas of the country with strong job growth have even lower supply. Denver, Seattle, and San Francisco have about 2 months of supply, making each of those cities a sellers’ market. Miami, with a supply made up mostly of condos, has the highest supply of the largest metros at 9 months.
The incredibly tight inventory on the low end has pushed prices up for that segment of the market. As measured by the CoreLogic Home Price Index, prices for lower-end homes increased by almost 10 percent year over year in March 2018, while prices for higher-priced homes increased by 6 percent. Increases for lower-end homes can price entry-level buyers out of the housing market, keeping a lid on overall home sales.
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