Lawrence Yun is chief
economist of the NATIONAL
ASSOCIATION OF REALTORS®.
Learn what the latest
economic indicators mean for
the real estate industry.
Seeds of a
The market is looking much improved today, with
home sales and prices heading up. But within this
improvement are the seeds of a long-term challenge: falling inventories.
The inventory of existing homes is at its lowest level in seven years, while newly constructed
home inventory has hit a 50-year low mark. Falling inventory is causing home prices to shoot up
higher and faster than most analysts anticipated.
The national median price of transacted homes
was up 9. 5 percent in August. Other price measures, like Case-Shiller and the Federal Housing
Finance Agency price index, which look at price
changes in sales of the same properties over time,
have been rising as well, at double-digit annualized rates in recent months. Of course, not all
markets are this robust. Phoenix is looking to
notch a 25 percent gain for the year, while Chicago
is just emerging from;negative territory.
As winter approaches, inventory will slide further. Few homes are newly listed after Thanksgiving. Historically, inventory tends to be 15 percent
lower in winter than summer. Last year’s seasonal
decline was even more dramatic, at 25 percent. We
hope we won’t see an inventory decline of that
magnitude this winter. Home values rising much
faster than income growth will markedly cut into
But that may well be what’s in store. Distressed
home listings will continue to fall because fewer
borrowers are now seriously delinquent. Home
construction is up, but only reaching half of the
historic average of housing starts. Even the many
pent-up sellers—those normal, nondistressed
home owners who’ve been holding back for better
market conditions—will not help the net inventory situation, because most of them will be selling to buy a trade-up property.
Slight seasonal relief should come in March,
just as the spring buying season gets underway.
But a deeper and longer-term issue to watch out
for is the increasing possibility of a housing shortage across many parts of the country. W
Prices & Availability
Time on Market:
On market 3 months
Sales and prices are up and the length of time it takes to complete sales is down, but NAR’s data for August suggests real
estate isn’t out of the woods. The national median home price,
at $187,400, is up 9. 5 percent from year-ago levels, and the
market is on pace to see 4.82 million home sales this year, a
9. 3 percent improvement over last year. Almost two-thirds of
sales are completed within three months, a big jump from a
year earlier. But practitioner confidence, a good indicator of
how the market will look down the road, has barely budged for
months. All trend lines are from August 2011 to August 2012.
4. 8 million 99.2 (index)
2. 5 million 187.4 thousand
Time on market:
3 months or less
PENDING HOME SALES
Existing-home sales is a seasonally adjusted annual rate, which is
the actual rate of sales for the month, multiplied by 12 and adjusted
for seasonal sales di;erences. Pending home sales is an index
that measures housing contract activity. An index of 100 is equal to
the level of activity during 2001, the benchmark year. Inventory
measures the number of existing homes on the market at the end
of the month. Buyer and seller tra;c, current conditions, six-month expectations, and time on market derive from a monthly
REALTOR® Confidence Index. Results are based on 3,421 responses
to 6,000 surveys sent to large and small real estate o;ces. The
survey asks practitioners to indicate whether conditions are strong
(100 points), moderate (50), or weak (0). Some data may be revised
from previous issues.