Though the housing market is in the middle of a strong recovery, the one issue that still remains a challenge is inventory. Demand is currently strong and Frank E. Nothaft, Chief Economist at Freddie Mac, projects that 2014 will be the best year for home sales since 2007. We must make sure that the supply of homes matches this demand.
The Federal Reserve Bank of San Francisco (FRBSF) recently published anEconomic Letter with their thoughts on housing inventory and where it may be heading.
Housing Inventory and Rising Prices
The good news is the FRBSF research reveals inventory will increase as prices rise:
“Formal statistical tests indicate that changes in house prices have a causal effect on inventories and the two series are tied together in a long-run relationship. This makes sense. All else equal, rising house prices should make homeowners more willing to sell and inventories should rise.”
We have seen strong price appreciation in 2013. So why haven’t inventories grown more significantly? The research is quick to point out:
“This adjustment of inventories to house price changes may not be instantaneous.”
There may be additional factors impacting the current situation. Again, back to the research:
“Current homeowners may be making a rational choice to postpone selling in the hope that prices will rise further. However, this behavior tends to be short run. In the longer run, the link between the level of house prices and for-sale inventories is strong. If prices continue to rise, inventories for sale should eventually rise too.”
History shows that housing inventory builds with an increase in house values. This should mean there are many homeowners getting ready to sell.
Provided by KCM
LARRY MCKENNA -
COLDWELL BANKER RESIDENTIAL BROKERAGE