Shrinking Inventories = Rising Prices

Shrinking Inventories = Rising Prices

July 25th, 2015

Quarterly Numbers Wrap-Up

With the second quarter coming to a close, let’s take another look at what effect recently reported numbers may have on the market overall.  There were really two main pieces of data that buyers and sellers care about – decreasing inventories, and rising prices.

Inventories Tighten as Sales Increase

National inventories of homes for sale fell 6.5% in June from last year at this time according to Zillow, and for the moment, the major homebuilders don’t seem to be keeping up with demand.  Sales of existing homes continued their brisk pace – up 3.2 percent in June from May, and up 9.6% over June last year.  In fact, we’re now selling at the highest pace since February of 2007!   If homes are going to keep selling so quickly in this market, and more people don’t suddenly decide to sell, the home builders are going to have to increase new groundbreakings or the availability of homes for sale will continue to shrink.  At the end of the first quarter, we told you there was a little over a 5 month supply of houses at the current selling pace.  That number is shrinking, but for the moment existing inventories should last about exactly 5 months, according to the National Association of Realtors.   

Prices Rise

It goes without saying that home prices are directly related to inventories.  As supply has gone down, prices steadily rose in the second quarter, with the nationwide median existing-home price rising 6.5 percent over a year ago. (Coincidence that this happens to be the exact amount by which inventories decreased?  Yes.  But they are definitely linked.)

Rents nationwide have been steadily increasing as well, and since mortgage rates have stayed historically low for some time now, it seems that more and more buyers are going to continue to enter the market and drive demand.   Many REALTORS are beginning to exchange stories of strong competition for properties, limited time on the market for available listings, and even bidding wars.

What does buying or selling in this climate mean for you?

As NAR President Chris Polychron recently said, “Buyers should work with their REALTOR to deploy a negotiation strategy that helps their offer stand out.”  Buyers should definitely not be afraid to start looking, as this market shows no signs of slowing. For Sellers, now is a great time to list, if you’ve been thinking about it.  Talk to us about strategies for both!