For-Sale Housing Inventory Falls to Record Low Level
Written By: Joel Palmer, Op-Ed Writer
Although industry experts have forecasted an increase in purchase mortgages in 2020, the dearth of housing inventory for sale may render those predictions a bit too optimistic.
Prospective homebuyers looking forward to the upcoming spring season may struggle to find their ideal home. According to Realtor.com's January housing data, the national inventory of homes for sale plummeted nearly 14 percent year-over-year. The number of houses on the market in January fell to its lowest level in the eight years the organization has tracked inventory statistics.
This followed a 12-percent year-over-year inventory decline in December 2019. What’s more, the volume of newly listed properties fell 10.6 percent.
The market may be even tighter this spring for first-time buyers. In January, the inventory of homes priced under $200,000 was 19 percent lower than it was during the same month in 2019.
Home construction will do little to help the supply-demand imbalance. Although sales of newly constructed homes increased more than 10 percent in 2019, it’s still not enough to meet current demand. In fact, Realtor.com says that even with an above average pace of construction, it would take home builders four to five years to solve the gap.
Fannie Mae forecasted single-family housing starts to grow by almost 10 percent in 2020 and to top 1 million new homes in 2021. This is still well below the annual peak of about 1.7 million single-family starts seen in 2005.
Inventory remains one of the few impediments to a more robust housing market.
Fixed mortgage rates continue to invite purchase and refinance mortgages. Rates have fallen nearly every week since the beginning of the year. The average 30-year fixed rate has dropped from 3.74 percent to 3.45 percent since the first of the year. The average 15-year fixed rate has declined from 3.19 percent to 2.97 percent so far in 2020.
“The combination of very low mortgage rates, a strong economy and more positive financial market sentiment all point to home purchase demand continuing to rise over the next few months,” said Sam Khater, Freddie Mac’s chief economist.
A pair of recent regulatory changes also make qualifying for a mortgage a little easier.
FHA raised mortgage limits for 2020. The 2020 limit for for single family properties will range from $331,760 in low-cost areas to $765,600 in high-cost areas.
Plus, a new federal rule was adopted in 2019 that increases the appraisal threshold for certain residential real estate transaction from $250,000 to $400,000.
And although it hasn’t taken effect, the Consumer Financial Protection Bureau has recommended the removal of debt-to-income ratios for qualified mortgages.
Still, the lack of inventory has pushed up home prices in most of the country. The National Association of Realtors has made housing affordability a top advocacy priority in 2020. Among its suggestions for improving housing affordability is improved FHA underwriting criteria that is more equitable for first-time homebuyers.
“With housing affordability set to be one of the defining policy issues of this decade, it is imperative for NAR – along with economists, lawmakers and other industry stakeholders – to lead discussions that will generate solutions to these far-reaching problems,” said NAR President Vince Malta.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
