Tight Inventory Leads to National Home Sales Decline
Existing-home sales fell in April due to the continuing troubles with low inventory in the housing market. Housing inventory in April reached 1.8 million existing homes; while this was a welcome increase of 9.8 percent from March, it was still down 6.3 percent from April 2017’s inventory of 1.92 million existing homes. What’s more, for the past 35 months in a row, housing supply levels have dropped year over year. At the current sales pace, the level of inventory represents a 4-month supply. A year ago, there was a 4.2-month supply of homes available for sale.
Low in Supply, High in Demand
Demand from buyers continues to remain high despite rising mortgage rates, due in part to the robust job market and the improving economy. The strong demand for homes was tempered by the lack of inventory and led to a 2.5 percent drop in existing-home sales. According to Lawrence Yun, chief economist for the National Association of Realtors (NAR), “Inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.”
This housing shortage led to a rapid sales pace. In April, the average time a property remained on the market was 26 days, down from 30 days in February and 29 days a year ago. Of all the homes available in April, 57 percent were sold in less than a month. This rapid pace is unprecedented in recent history. According to Yun, “Since NAR began tracking this data in May 2011, the median days a listing was on the market was at an all-time low in April, and the share of homes sold in less than a month was at an all-time high.”
The combination of low supply and high demand generated price appreciation in many markets across the country. This coupled with climbing mortgage rates led to issues surrounding housing affordability. NAR economists warned that the current market—where price appreciation outstrips incomes—is not sustainable. An increase in housing inventory is necessary to prevent further erosion of housing affordability.
One group impacted disproportionately by housing affordability is first-time buyers; with no house to sell, they fail to benefit from price appreciation. In April, first-time buyers accounted for 33 percent of all sales activity, up from 30 percent a month ago but down from 34 percent a year ago. For all of 2017, first-time buyers represented 34 percent of buyers.
Northeast – Existing-home sales annual rate of 650,000; a decrease of 4.4 percent from March and 11 percent from April 2017.
Midwest – Existing-home sales annual rate of 1.29 million; unchanged from March but a decrease of 3 percent from April 2017.
South – Existing-home sales annual rate of 2.33 million; a decrease of 2.9 percent from March but an increase of 2.2 percent from April 2017.
West – Existing-home sales annual rate of 1.19 million; a decrease of 3.3 percent from March and 0.8 percent from April 2017.