Many Realtors and economists have been asking this question. Why such a low housing inventory? Total existing-home sales jumped 5.1 percent to a seasonally adjusted annual rate of 5.33 million in March from a downwardly revised 5.07 million in February, as we reported last week.
But though total housing inventory at the end of March increased 5.9 percent to 1.98 million existing homes available for sale, it is still 1.5 percent lower than a year ago (2.01 million). And unsold inventory is at just a 4.5-month supply at the current sales pace, up from 4.4 months in February, but much below the 6 month’s supply during normal times.
We are running out of homes for sale with the 2016 selling season about to start, in other words. And new, replacement home sales are still at historic lows, when only more new homes can keep up with population growth, especially of millennials, the most populous generation of all that outnumber even their baby boomer parents.
For instance, home prices in the Dallas metro area, historically one of the nation’s most stable and affordable markets, have climbed at one of the fastest rates in the U.S. since 2014, reports Calculated Risk. And inventories of houses on the market are under two months’ supply, the lowest in 25 years.
The major answer to the housing shortfall has to be that many homes are off the market because they are rented—to the millennial generation, above all, who can’t afford to buy a home, in part because their incomes have declined due to the Great Recession and many are heavily indebted from soaring education costs.
Sales of new single-family houses in March 2016 were at a seasonally adjusted annual rate of 511,000, said the U.S. Census Bureau and the Department of Housing and Urban Development, far too low to replenish housing inventories.
This is still below the 600 to 800,000 new-homes sold annually that prevailed during the 1970s and 1980s. New-home sales then took off in the 1990s to reach 1.4 million annualized units at the height of the housing bubble in 2005, per the above graph. In comparison, current sales are 1.5 percent below the revised February rate of 519,000, but 5.4 percent above the March 2015 estimate of 485,000.
What will it take to bring new-home sales back to historical levels? There is a “Distressing” Gap between new and existing-home sales, says Calculated Risk, whereas they matched during more normal times and only began to diverge in 2006 at the top of the housing bubble.
So more new homes must be built, of course. But builders have to offer homes in the moderate price range for that to happen, with home prices rising 5 to 7 percent at present. New-home construction is beginning to pick up. Currently, privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,089,000. This is 8.8 percent below the revised February estimate for new construction of 1,194,000, but is 14.2 percent above the March 2015 rate of 954,000, according to the Census Bureau.
Starts are improving, but still far from historical levels. For instance, total starts of both single family and multi-unit rental housing averaged between 1.5m to 2m units from the 1970s to 1990s, before soaring to 2.5 million during the housing bubble.
This means that housing construction has to double just to bring it back to historical levels, and we are adding some 80 million millennials from the ages of 18 to 35 years to those needing housing.
Stay tuned, as the Fed has to cooperate by keeping interest rates as low as possible for as long as possible to make those new and existing-homes affordable, what with today’s much more restrictive qualification requirements, and the future of Fannie Mae and Freddie Mac, guarantor for the majority of home loans, still uncertain.
Harlan Green © 2016
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