Why is the Real Estate Market being Held Back?

    With all of the talk about how great the housing market is doing it often eludes us just what struggles the housing market is currently experiencing. Sure, the housing market is recovering nicely nationwide but it isn’t going as well as some of our more optimistic experts have predicted. Yes, housing prices are up, interest rates are down, and housing construction is picking up, but what is it that is holding the real estate market back from exploding? There has been no shortage of excuses as to why the housing market is plateauing: rising interest rates, stringent lending standards and practices, and the weather. However, we believe that of all of the possibilities that could be curtailing the number of houses sold in the housing market can be narrowed down to one thing – the number of houses available for sale.

    This would almost seem like a no-brainer to even the most novice real estate enthusiast. You simply cannot sell what you do not have. In a recent economic forecast, Freddie Mac addressed this exact issue:

    “Including newly built homes in the inventory count, the total number of homes offered for sale relative to the number of households in the U.S. has been running at the lowest level in more than 30 years, as shown in the second exhibit. The relatively low for-sale inventory reflects several features of today’s market.” “A supply-constrained market (holding other factors constant) will result in a decline in the volume of sales and an increase in real transaction prices.”

    What does this mean for the housing market? It means that in order for our national and local markets to flourish we must see an increase in houses listed for sale. History shows us that a balanced real estate market requires a six-seven month supply of available housing inventory. Portland has a monthly housing inventory of less than 3 months and prices have been affected because of it (the dramatic increase in home values over the last year and a half is due in part of natural appreciation but is more affected by the lack of inventory). The National Association of Realtors (NAR) released their Existing Homes Sales Report earlier this week. The report revealed that, as a nation, we are still only at a 5.5 month supply of homes for sale. It is also interesting to note that we have not reached the 6 month benchmark is over two years (even longer in Portland). The steady, and most recent, increase in buyers now looking to buy a home will start to heavily strain on the limited supply of homes the country has available for sale. Most buyers are attempting to take advantage of the mortgage rates before they start rising again which puts an added stressor on the market. While inventory levels remain below historic norms, the country will remain a seller’s market with prices rising faster than they should. This being the case though, if you are considering selling your home, then now is the time to take full advantage of the current market situation.

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