Does Inventory Really Explain Declining Home Sales?

Does Inventory Really Explain Declining Home Sales?

Almost everyone has said it or heard it: Existing home sales are in the toilet because there is no inventory and there is no inventory because no one wants to part with their 3% mortgage when rates are 7%. “There simply aren’t enough homes to sell,” according to NAR’s chief economist, Lawrence Yoon. “The market can easily absorb double the inventory.” More inventory would certainly be a good thing in almost every respect. Doubling inventory will probably keep prices in check or push them down a bit, but it may not evoke as much buying demand as you might assume. Two separate stats in current home sales data illustrate this point. The first is for inventory in terms of units. This graph makes it look as if the stock is at an all-time low and is not increasing as fast as it usually is at this time of year. But the takeaway changes a bit when we look at inventory in terms of “months of supply.” Since it’s not very easy to glean a quick takeaway from the two charts above, here’s the thing: In terms of units, no stock is anywhere close to mid-2020 levels while the “supply months” are much higher. Let’s grow old: All this to say: inventory alone is only part of the problem. There is also definitely a demand issue in the housing market, likely due to pricing, software availability, and lesser other factors. After all, sales haven’t been as good since trying to rebound at the beginning of the year. That’s about as low as current sales have been since the mid-1990s, with the brief exception of the housing/mortgage collapse. Other highlights from today’s data: Average price: $410,200 Record high June 2nd June 2022 was $413,800 Time in the market 18 days from 14 days in June 2022 No significant changes First-time buyers are down 27%, down from 28% last month.

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