WHY HOUSING INVENTORY LEVELS REMAIN CONSTRAINED
And Why We Should Expect That Trend to Continue
Spring is traditionally the busiest time of year for real estate. Buyers largely want to be moved into their new homes in time to enjoy the summer and before the start of the school year in early fall. And because springtime demand is often higher than during other parts of the year, spring typically sees the most inventory come to market and the highest sale prices of the year. But this year is different. In recent years, by mid-may, we typically see national inventory start of the year. So far this year, we've seen precisely the opposite; inventory levels have dropped approximately 14% from the beginning of 2023. And although there's more inventory today than during the same time in the historically low springs of 2021 and 2022, there are substantially fewer homes on the market now than in the spring of each 2017, 2018, 2019, and 2020. And if the pace of new inventory coming to market continues, there's a chance we'll reach late summer/early fall with less inventory on the market than in 2022.
And while the amount of homes available has finally slowly started creeping up, there are several reasons why we shouldn't expect a sudden spike in inventory levels in the near term that is going to alleviate the ongoing upward pressure on home prices, which have continued increasing month-to-month nationwide since the start of 2023.
First, nearly 2/3 of homeowners in the United States -- approximately 62% -- have mortgage interest rates below 4%. And over 82% of homeowners have mortgage rates below 5%. These interest rates are substantially lower than the average rate currently available on the market, which has risen in the past couple of weeks to just shy of 7%, as uncertainty surrounding debt-ceiling negotiations looms and the economy continues to show signs of resilience despite the Federal Reserve's ongoing rate-hiking campaign. Until interest rates come down, homeowners will continue to be reluctant to list their existing homes and purchase new ones, unless they can do so with cash, or their life circumstances necessitate the sale (e.g., because of divorce, job change, or similar circumstances).
Second, the majority of homeowners today are in excellent financial positions and unlikely financially pressured to sell. Over 2/3 of homeowners have at least 50% equity in their home, and nearly 39% of homeowners have no mortgage whatsoever.
Unless and until interest rates come down, or a life change forces them to, most homeowners today are simply unwilling to voluntarily give up their beneficial financial position in favor of a new home.
Americans' overall financial health from a housing perspective (combined with record-low unemployment, among other factors) is a main driver of the lack of foreclosure activity many doomsayers believed would drive the housing supply up and cause prices to fall. Foreclosure filings are up following the lifting of moratoriums instituted at the onset of the COVID-19 pandemic but remain near historic lows. There were 95,712 U.S. foreclosure filings during Q1 2023, about 1 out of every
1,459 housing units in the country. But of those, only 65,346 actually entered the foreclosure process, and lenders repossessed only a subset of those, just 12,518 properties, through the foreclosure process during that timeframe. In fact, foreclosures in March 2023 represented just 1% of overall sales.
Because homeowners don't want to sell and largely aren't feeling financial pressure to do so, inventory is likely to remain constrained moving forward.
