Shrinking Housing Inventories a Good Sign for CMs

The housing market appeared to cool off a bit in February, but a trio of reports indicate good news on the horizon for component manufacturers and new construction.

According to Lawrence Yun, chief economist for the National Association of Realtors, home closings retreated in February as too few properties for sale and weakening affordability conditions stifled buyers in most of the country.

"Realtors® are reporting stronger foot traffic from a year ago, but low supply in the affordable price range continues to be the pest that's pushing up price growth and pressuring the budgets of prospective buyers," he said. "Newly listed properties are being snatched up quickly so far this year and leaving behind minimal choices for buyers trying to reach the market."

Click here to watch a video of Yun’s full remarks on existing inventory and its impact on home prices.

However, experts caution reading too much into the lower February numbers. According to an article in Housingwire:

 “Strong consumer confidence in the housing market should keep existing home sales from sliding in the coming months, with homebuyers also seeing some relief in low inventory from the new construction end,” Trulia Senior Economist Cheryl Young said. “But gridlock at the lower end of the housing market will keep existing home sales well below pre-recession levels.”

And this increase won’t be letting up anytime soon, housing experts say.

“It’s important not to read too deeply into the one-month dip in existing home sales in February; the housing market is still running quite hot, and the next few months look to be as competitive and fast-moving as ever,” Zillow Chief Economist Svenja Gudell said.

Trulia provides some excellent analysis on existing home inventories, and the market pressures that may influence what homebuilders seek to build in the near future:

Nationally, the number of starter and trade-up homes continues drop, falling 8.7% and 7.9% respectively, during the past year, while inventory of premium homes has fallen by just 1.7%;

The persistent and disproportional drop in starter and trade-up home inventory is pushing affordability further out of reach of homebuyers. Starter and trade-up homebuyers need to spend 2.9% and 1.6% more of their income than this time last year, whereas premium homebuyers only need to shell out 0.9% more of their income;

A strong recovery may be partly to blame for the large drop in inventory some markets have experienced over the past five years. On average, the more valuable a market’s housing is compared to pre-recession levels, the larger drop in inventory it is has seen.

What all three of these articles point to is a strong need for more housing stock. That can only be good news for CMs.