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Supply of Homes for Sale Slumps in December

The final month of 2019 saw a greater slump in real estate sales than previously anticipated by the market. With the holiday season in tow, December is never a popular time to list a home for sale – however this past month’s supply of homes for sale was 12% lower when compared with the same month in 2018, according to realtor.com. This was also a much steeper decline than the 9.5% drop witnessed in November.

As expected, the shortage of homes for sale has taken the biggest hit at the low end of the market, but the drain in supply is actually accelerating across all markets, including the most expensive properties. The end of the year saw the supply of entry-level home priced at less than $200,000 drop more than 18% annually, compared to the 16.6% drop witnessed in November. Midrange houses priced between $200,000 and $750,000 dropped 10.2% annually, compared with November’s decline of 7.4%, while the top end houses priced over $1 million reported a drop of 4.4% annually compared with November’s 2% slump. The median listing price on a U.S. home is currently just under $300,000.

While low-cost homebuilders are continuing to tap into a market of millennials – around 4.8 million of whom will be turning 30-years old in 2020 and looking to buy for the first time – the supply of houses being built and listed simply isn’t able to meet the sizable demand.

The drop noted in December suggests continuing unevenness in the housing market, with many predictions expecting historically low levels of houses for sale to come. December’s slump represents a loss of approximately 155,000 listings, compared to the same period in the previous year, and the amount of new listings is decreasing as well.

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So what is causing this difficult time for the housing market? Higher prices are discouraging many potential movers from listing their homes; increasing numbers of older homeowners are choosing to stay where they are rather than selling their property; and a large number of investors have spent the past decade transforming previously sellable homes into rental properties, which has removed them from the market for prospective buyers.

Real estate is a local business however, meaning not all markets are encountering the same effects. While areas such as California, Seattle, San Francisco and San Jose all encountered a 30% drop in inventory in December, the major markets of San Antonio, Las Vegas and Minneapolis-St. Paul saw their supply of for-sale homes increase. This may appear to suggest that the struggling locations have simply faced an unfortunate year, but the problem is far more widespread than just a few bad districts.

Demand for houses will inevitably increase into the year. With mortgage rates still low potential buyers have greater purchasing power available, but this short supply is likely to push prices up across the board, and currently the majority of new homes in the U.S. are already on the mid to high end of the scale. While many builders are beginning to develop lower-cost properties, as well as ramping up production in general, it will likely be some time before their efforts begin to make a real impact across the market.

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So what next for the housing market? If you believe the gloomiest predictions, the U.S. could be due for another market crash. Just like in 2008, slow wage growth has made it difficult for potential buyers to keep up with the rising house prices. Property sales are currently expected to drop by 1.8% this year, and it’s likely that potential buyers pull out as they struggle to afford the few properties on sale. Combined with a greater uptake of low mortgage rates, this does not paint a pretty picture for real estate. As sales decline, prices may follow – this could leave buyers struggling to make payments on houses that were too expensive for them in the first place.

This is a worst-case scenario prediction however. New homes are being built across the country and the rate is increasing – construction began on 1.37 million new homes in November 2019, a 3.2% increase on October’s numbers and a 13.6% increase on the same month a year prior. If these numbers are accurate and production is successfully ramped up, the construction industry may be able to alleviate the strain that the housing market is currently facing.

Right now, the best advice may be for prospective buyers to hold on to their cash. Low mortgage rates may seem tempting, but the lack of houses available will mean paying out an unjustifiable fee overall. The situation may improve further into the year as more and more properties are built, but if possible it’s worth waiting to see if the market steadies out over the coming years before making such a sizable investment.