Supply in the housing market prevents prices from crashing

The housing stock in the US fell between October and November this year, underscoring a housing shortage that some experts believe is helping to keep rising prices from a dramatic collapse.

The National Association of Realtors (NAR) announced on Wednesday that the total housing stock at the end of November was 1.14 million units. That was down 6.6 percent from October, but up 2.7 percent from a year earlier when there were 1.11 million units.

“Unsold inventory at the current pace of sales stands at 3.3 months supply, which was the same as October but up from 2.1 months in November 2021,” the group said in a release.

The potential or lack of a crash for the US housing market has become a major talking point in recent months amid rising mortgage rates, rising home prices and inflation. Experts have repeatedly cited US housing supply as a key difference between the current market and the market during the 2008 housing crisis.

There was oversupply back then, but that’s not the case today. A report by Freddie Mac released in May 2021 found that the US had a housing supply deficit of 3.8 million units in the fourth quarter of 2020.

Separately, the NAR commissioned a report last year that found that since 2001 the US has had a “subsoil gap” of 5.5 million to 6.8 million housing units.

development of the housing market
A worker carries lumber as he builds a new home in Petaluma, California January 21, 2015, with a “For Sale” sign in front of a home in 2022. The U.S. housing stock declined between October and November of this year . This underscores a housing shortage that some experts believe is helping to prevent price falls.
Justin Sullivan/Getty; Joe Raedle/Getty

Jerry Howard, the CEO of the National Association of Home Builders (NAHB), said during an interview on Fox Business Monday that there’s a shortage of first-time buyers in the market right now because they’re almost “impossible” to build.

He noted that construction costs had risen alongside general inflation in the country.

“Builders are in a dilemma right now,” Howard added. “A lot of the smaller builders are starting to take on remodeling and refurbishment jobs just so they can keep their businesses going.”

While builders seem to be struggling, the housing deficit may play a key role in preventing the sharp decline in home prices that can characterize a market crash.

Kelly Mangold, a director at RCLCO Real Estate Consulting, narrates news week Earlier this month that she doesn’t think another situation like 2008 will happen “because we still have inventory under construction.”

The low housing stock actually keeps prices in some areas “more stable than you think, just because it’s scarce,” said Mangold.

That doesn’t mean that house prices won’t fall at all. Redfin, in its 2023 Housing Outlook, predicted that the median US home selling price would fall 4 percent in 2023 to $368,000. But prices “would fall more if there weren’t a shortage of homes for sale,” the outlook said.

Following the NAR’s announcement on Wednesday, chief economist Lawrence Yun said news week that the housing stock decreases each year in the winter before rising again in the spring.

“So the monthly decline figures are nothing new. What’s important is the year-on-year change, which showed a modest gain from very tight supply. However, to really balance supply and demand, we need to see about a 50 percent increase in inventories. Because of this, house prices are still showing some gains despite a fairly sizeable drop in home sales,” Yun added.

According to NAR, existing home sales in November fell for the tenth straight month, falling 7.7 percent from the previous month. The average price of existing homes for all apartment types rose 3.5 percent to $370,700 from $358,200 last month from November 2021. Prices have risen in all regions, the NAR said. Supply in the housing market prevents prices from crashing

Rick Schindler

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