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Does Housing Inventory make it Difficult for the Market to Completely Recover?

The real estate market has been going through an upsurge, and enjoying recovery at a very steady pace. The picture would have appeared to be really pretty, had it not been for one factor: tight inventory and the low supply of available homes.

According to the managing director of a reputed real estate firm, the low inventory levels are a huge problem for the housing market. The demand is high but there is just not enough supply. They went onto add that if the inventory level did not rise soon, prices will increase further which will lead to trouble for home buyers.

As of now, predictions claim that home prices will increase by around 5% this year. As far as the gains within this percentage, it will be alright and there will be no negative impact on the housing market. Should the prices rise beyond 5%, then it will cause buyers to disappear from the scene, and eventually result in another housing bubble.

The last recoded values of the housing inventory are around 1.867 million homes, which is nearly 10% less to the previously observed stats. This inventory estimates the supply to be around 4.6 month at the ongoing sales pace. However, the supply of a healthy market is higher than this, around six to seven months.

A chief economist told us that 2013 saw a different trend in the type of home sales last year. Conventional sales were greater in number than distressed sales, which implies that short sales and foreclosures make up a smaller percentage of the overall houses that are sold. Compared to the values in the year before, 2013 observed a rise of 12% for conventional sales. Obviously, the rise in home prices has contributed to an improvement in figures, but if there are abrupt price increases, the market will have to suffer.

Generally, as the year starts, nearly 15 million new houses are added to the inventory if the market is under normal conditions. However, this time, only 800,000 new homes have been added which is much less than normal values.

As of right now, the inventory level is still 18% less than normal levels. Construction has picked up pace, and new homes will be added to the inventory in the latter part of this year. This will increase the inventory levels and they will become better than the ones observed in 2013. The supply will still probably be less than demand.


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