top of mind
A Continuing Shortfall of Homes
The first half of the year looked strong,
with home sales and prices rising moderately on top of the gains experienced in
2015. Though prices will continue to rise,
sales in the second half face more challenges. That’s because too few homes are
available to keep up with demand. Total
inventory on a year-over-year basis fell
6 percent in July, the 16th consecutive
monthly decline. The supply level hit 4. 7
months. In contrast, when home prices
were falling several years ago, the supply
hovered between 10 and 12 months.
The most recent housing crisis was
the result of a collapse in demand, which
led to depressed home prices and rising
foreclosures. The next housing “crisis”
will be due to a collapse in supply.
As employment strengthens, more
households would like to buy, but there
aren’t enough homes for sale. Home
prices are rising at a higher rate than
incomes are growing. While income has
ticked up a percentage point or two,
home prices have been growing by 5 or
6 percent a year. That in turn is creating
an a;ordability crisis. Somewhat paradoxically, the home ownership rate—at
63.5 percent of households—is at a 50-
year low even though mortgage rates, at
about 3. 5 percent, are also at their lowest
level over the same time period.
Looking ahead, new-home sales will
rise in the second half of the year as
builders boost construction. We expect
between 700,000 and 800,000 single-family starts in the year ahead. That’s
a marked improvement from just a few
years ago, when housing starts were a
fraction of the historical norm. Still, we
need about 1. 5 million starts annually
because of the country’s expanding
population. In the meantime, a;ordability
issues will likely hurt existing-home sales.
That’s even more likely to be the case if
interest rates start edging up. Only when
supply reaches closer to six months—our
definition of a balanced market—will we
see the best of all worlds: rising new-home sales, rising existing-home sales,
rising home prices, and a rising home
Lawrence Yun is
NAR chief economist.
TOUGHER TIME FOR
The median income of first-time home buyers
continues to be high enough to qualify for
financing, but the margin has been narrowing
over the past three years. If the trend continues
due largely to escalating home prices, obtaining
a mortgage will become much harder for new
MARKET PULSE Jobs are growing and interest rates remain low, but tight inventory
in many parts of the country continues to drive home prices up, hurting a;ordability, especially for first-time buyers, who can’t tap home sale proceeds to come up with a down payment. Sellers, meanwhile,
are reporting faster sales, with homes averaging 36 days on the market, down from 42 days a year ago.
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.
2. 13 Million
5. 39 Million
SUPPLY & DEMAND
All trend lines are from July 2015 to July 2016.
Source: NAR Research
1/2015 4/2014 3/2014
1/2014 4/2013 3/2013
1/2013 4/2012 3/2012
Prime Median Buyer Income