One of the most basic tenets of a capitalist system is that of supply and demand; if supplies are limited and demand remains strong, it’s almost a certainty that the cost of that product will inevitably rise.
Perhaps no better example of the enduring truths of the Law of Supply and Demand can be found in the current US housing sector; recent reports indicate that US home prices rose by 7.5% in March, resulting in a median home sale price of approximately $273,000 during that same period; that marked a significant 8.9% jump over the same period a year earlier.
Concurrent to the increase in home prices, the number of homes up for sale declined by 13% compared to the same period a year earlier; that monthly decline in available homes for sale continued an 18-month trend dating back to 2015.
While some other sectors within the US economy are receiving ‘mixed messages’ about their prospects for the balance of the year (i.e. 2017 auto sales are down from the levels seen last year), statistics appear to indicate that this calendar year may turn out to be the fastest housing market on record. Homes are selling at a more rapid pace than at any time in recent memory, with a typical home sales contract signed within 49 days of entering the market in March; last year, a typical home required 60 days before a buyer could be found.
Since the Great Recession—and the ensuing housing industry collapse—in recent years some metropolitan housing markets had experienced a more rapid recovery than others.
That appears to no longer be the case.
Recent statistics indicate that the recovery in the housing market has now spread far and wide across the nation. While not every metropolitan housing market is enjoying a full-fledged recovery, the market demand for homes is unquestionably spread across more cities and states than in recent years.
Almost one-third of metropolitan markets surveyed by Redfin—32 out of 90 housing markets nationwide—saw a double-digit increase compared to the same period last year. Cities large and small experienced a stronger housing market, with Poughkeepsie, NY, leading the way in year-over-year sales growth with a whopping 41 percent increase, with Baltimore a close second place and an increase of 40.6 percent in home sales year-over-year.`
Overall, according to the National Association of Realtors (NAR), March’s numbers indicated that US home sales have increased to an adjusted annual rate of 5.71 million units; that marks the highest recorded sales level in more than a decade—dating back to February 2007.
On the flip side, the NAR also reported that national housing inventory dropped by 6.6 percent from one year earlier.
Despite the fact that it has been almost a full decade since the housing sector meltdown, many industry observers believe that the current shortage of available housing inventory reflects an ongoing legacy of the last housing bubble. The rationale behind that belief is that foreclosed homes were bought en masse by investors during and immediately after the housing crisis, thereby depriving the market of a large portion of its supply of homes.
In addition, homeowners lucky enough to have avoided foreclosure went on to refinance their homes with historically low mortgages, and as a result may be less willing to move into a home that could carry with it higher mortgage payments.
Going forward, there are numerous factors that could—potentially—add to the already challenging home sales market. In addition to the possibility of rising interest rates–the Federal Reserve had previously indicated that at least two additional rate hikes were in the works for this calendar year—there’s the issue of the availability of skilled construction workers; the latest unemployment figures indicate a 10-year low in jobless Americans, and the housing sector has already experienced some labor shortage issues.
Additionally, some industry observers have raised concerns that President Trump’s expected tariff on Canadian softwood lumber could add as much as $2000 or more to the cost of an average home.
Going forward, one thing is certain: if demand for homes continues to exceed the available inventory, the end result will be a higher sticker price for Americans looking to purchase a house—simply put, it’s no more complex than the basic tenet of supply and demand.