top of mind
If You Build It, They Will Come
Home sales have been volatile on a
month-to-month basis, but on average
they’re almost exactly where they were
last year: at an annual sales pace of about
5. 2 million units. Closing rules that took
e;ect in October likely played a role in
the inconsistency, as did abnormal winter
Notwithstanding the ups and downs of
the transaction pace, there appears to be
a steady stream of buyers in the market,
so we can expect sales to hold steady this
year and settle at a pace close to where
they were at the end of 2015.
The chief constraint continues to be
inventory levels, which remain historically
low. There were only 2 million homes
available for sale nationwide at the end of
March. That’s just a 4.5-month supply at
today’s sales pace. Additional inventory
will spur more transactions and moderate
The latest annual home-price growth
of 5. 7 percent is unsustainable because
incomes are rising by only 2 percent per
year. Either demand will have to fall or
supply will have to increase to align price
and income. Many potential first-time
buyers are telling us they are less likely to
buy now, since prices are moving beyond
the a;ordable range. That is why first-time buyers currently account for just
30 percent of the market, compared with
the more typical 40 percent.
Given that a;ordability is a major
factor in home buying, the best way to
improve the market is to bring in additional supply. Builders should be all over
this. Sales data indicate they are selling
everything they build within three months
on average, so why aren’t they building
more? If inventory levels were higher,
overall home sales could easily rise by
another 15 percent from current levels.
Let’s hope whatever is holding builders
back—whether it’s the availability of
construction financing, local zoning
regulations, or the availability of skilled
construction workers—can be addressed
soon, because only when builders ramp
up production can we hope for a sales
expansion with staying power.
Lawrence Yun is
NAR chief economist.
The median number of days a home sits on the
market before being sold has fallen by more
than half over the last four years, from 98
days to 46 days. The sales pace for distressed
homes, by contrast, has bounced up and down,
but those homes comprise a steadily shrinking
share of the market.
MARKET PULSE Low inventories and escalating prices continue to define
residential real estate markets across the country. Low mortgage rates are a boon for business,
but first-time buyers need a greater supply of homes and easier financing to get them back into
the market at normal levels.
EXISTING-HOME SALES Seasonally adjusted annual rate, which is the actual rate of sales for the month,
multiplied by 12 and adjusted for seasonal sales di;erences.
INVENTORY Number of existing homes on the market at the end of the month.
PRICE National median.
SUPPLY & DEMAND
All trend lines are from February 2015 to February 2016.
Source: NAR Research
Median Days on Market Non-distressed homes
Distressed homes (short sales,
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
Distressed as Share of Market