Here’s the good news: Housing markets ravaged by hurricanes earlier this year appear to be recovering faster than expected. The bad news is that housing inventory shortages continue to push home prices higher, keeping many would-be buyers out of the market.
The National Association of Realtors (NAR) released its monthly existing home sales data on Tuesday. Existing home sales surged 2 percent in October compared to a month ago, led by gains in Houston and Florida, where hurricane-related issues are beginning to recede. But sales are down year-over-year by 0.9 percent, a trend largely attributed to inventory shortages.
“While the housing market gained a little more momentum last month, sales are still below a year ago levels because low inventory is limiting choices for prospective buyers and keeping price growth elevated,” said NAR chief economist Lawrence Yun.
For prospective first-time home buyers, the NAR report reiterates trends that have for years kept them from making the jump from renter to buyer. The backlog of homes foreclosed upon during the financial collapse is largely empty now, and property turnover has slowed dramatically.
This has led to a steady decline in the available existing homes for sale. Inventory of existing homes for sale was 1.8 million in October, a 3.2 percent decrease from a month ago and a 10.4 percent decrease from a year ago.
Existing home inventory continues to shrink
Construction of new homes has also lagged because of shortages in construction labor. A survey of home builders conducted by the National Association of Home Builders showed the percentage of builders reporting labor shortages ranged from 43 percent to a whopping 77 percent, depending on the specific construction job. This issue has limited the supply of new homes, in addition to making them costlier to build, as bidding on labor has pushed construction worker wages higher.
Meanwhile, demand for housing has surged as the unemployment rate has dropped. Millennials who’ve been reluctant to enter the buying market are beginning to do so as their wages rise and they begin to settle down and start families.
The result of these two trends is predictable: Low supply and high demand have pushed home prices up to their pre-crash peaks. The NAR reports that the nationwide median existing home price is up to $247,000, a 5.5 percent increase over a year ago. This trend is particularly pronounced in the West and Midwest, where prices are up year-over-year by 7.8 and 7.1 percent, respectively.
“The housing market largely remains stuck in the same, predictable rut it has been in for the past two years or so: Demand is high, inventory is low and nothing short of a dramatic shock—which nobody expects—seems likely to knock it off that track,” wrote Zillow chief economist Svenja Gudell in response to the NAR report.
“Currently, roughly half of what’s available to buy is priced in the upper one-third of home values,” the report reads, “leaving scant options for those aging millennials and young families trying to get their foot in the door.”