Earlier I linked to a blog post by Bill McBride of Calculated Risk that put the recent housing recover in perspective. Here’s another good review from Barry Ritholtz of The Big Picture. A number of analysts have pointed out that one reason home sales are low is that inventory of homes for sale is low. Some say this means the recent price increases are artificial, because buyers have to compete for the few homes available.
The more important point is that the housing inventory isn’t likely to increase for some time because of a number of fundamental factors. People can’t afford to put their homes on the market because they either are under water or have little equity. As long as they have jobs and are able to maintain their mortgages, they’ll stay put. Inventory is likely to remain low until incomes and the number of jobs increase the number of potential buyers and push prices high enough that the 40% or so of homeowners with little or no equity become willing to put their homes on the markets.
The spin from the NAR is always amusing, and this report is no different. How the NAR framed this, and what it might mean going forward, is rather interesting. NAR chief economist Lawrence Yun made the following statement: “The supply limitation appears to be the main factor holding back contract signings in the past month. Still, contract activity has risen for 20 straight months on a year-over-year basis.“1
Yun is onto something, but he doesn’t seem to really understand what it is. Supply limitation is an important factor, but why supply is limited is an even more important factor. Understanding the inputs into this directional vector is significant if we want to discern where housing may be heading this year. Said differently, the factors underlying the limited supply matter much more than the supply itself.