The inventory of homes for sale continues to shrink. There were 2.02 million homes listed for sale at the end of October, representing only 4.3 months’ supply. A balanced market would be closer to 6-to-7 months’ supply.  From a year ago, the raw inventory count was down 4%, which marked nearly two straight years of decline.

This shortage of housing inventory is the principal reason why home prices have been outpacing people’s income growth for the past five consecutive years. From 2011 to 2016, the median home price will have risen by 42% compared to the median household income gain of only 17%. Such disparity hurts affordability and is unsustainable over the long haul. The only way to lessen home price growth is to bring in more supply. It cannot be a simple case of existing homeowners listing their home. Keep in mind that nearly all home sellers are also home buyers, and thereby not truly providing a net increase to the inventory. The same logic applies to underwater homeowners who come above water after home price gains. What is needed is for homebuilders to boost construction and/or for investors who bought for the purpose of renting to unload those rental properties onto the market soon. There is no indication of the second occurring because of nice rental income flows. The only way to bring additional supply, therefore, is for homebuilders to get really busy.

View NAR Chief Economist, Lawrence Yun’s full article here.

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