Strong demand in late fall, largely due to lower interest rates, led to sharp inventory declines in August and September, respectively at -1.8%, and -2.5%. Inventory dropped a full -10% in September 2019 for houses prices $200,000 and below compared to inventory levels at this price point in September 2018.
Inventory supplies on the low end of the market are always leaner than other market segments…investors are most active within this price range.
Inventories for homes priced between $200,000 – $750,000, a good 60% of the market overall, flat-lined in September 2019 while price points have increased some +4.7% compared with one year ago. Experts anticipate supply within these price points to decline in the coming months due to the surge in move-up buyers expected to take advantage of lower interest rates and “cheaper money.”
New home building is not helping in this inventory downturn. Overall housing starts declined -9% in September 2019 with only slight and slow increases in the move-up and luxury sectors of the markets. According to Robert Dietz, chief economist with the National Association of Home Builders (NAHB), said, “Right now, only about 10% of the newly built home are priced under $200,000. Five years ago, that share was 1 in 5 and 10 years ago, it was 40%…”
Dietz does not foresee things changing in terms of “catching up to demand” any time soon as there is now an estimated backlog of 1M homes. “We’ve faced what has been called a perfect storm of supply side challenges. There has been an ongoing labor shortage, we lack necessary land and lots to build homes, we’ve had building material cost concerns and then, probably the most important factor, (there) have been higher regulatory costs since the Great Recession.”
Many experts believe that higher demand and lower supply will likely reignite home price gains.
According to Diana Ollick with CNBC, “If mortgage rates turn higher, then demand could fall back and price gains ease, but if they stay in the current low range, it is very likely that the (current) housing shortage will only get worse, setting the nation up for an increasingly competitive and expensive spring 2020 market.”