Why are Existing Home Sales Down?
The latest
Existing Home Sales Report issued by the National Association of Realtors (NAR) revealed that home sales have decreased for four consecutive
months and are at their slowest pace in over two years. This has some
industry leaders puzzled considering the fact that the economy is
strengthening, unemployment is down, and wages are beginning to rise.
This begs the question:
“Where are the buyers?”
Actually, agents in the field of most communities are still seeing
strong desire from prospective purchasers. They have a list of potential
buyers ready to go if the right houses come on the market and they
claim it is not a shortage of demand, but is instead a shortage of
inventory that is causing the market to soften.
Why is there a shortage of inventory?
You only need to look at the graph below to understand:
New construction sales over the last ten years are far below historic numbers from 1995-2002.
A recent
industry report looked at building permits and concluded:
“If construction over the past decade matched
historic norms, accounting for population change, the country would have
had 2.3 million more single-family home permits.”
That decade of not building enough homes is the primary reason for the concerns about today’s market.
Wait, weren’t we talking about ‘existing’ home sales?
Some may argue that NAR’s sales report deals with existing home sales
and not new construction, and they would be correct. However, reports
have shown that one of the main reasons why existing homeowners are not
selling is because they can’t find homes that meet the needs of their
current lifestyles. Historically, the upgrades in a newly constructed
home were the answers to those needs.
Over the last decade, however, there were fewer homes built to
satisfy this move-up seller. Consequently, there are many homeowners who
stayed in their homes for a
longer tenure, instead of putting their homes up for sale.
Bottom Line
As more new homes are being built, there will be more housing
inventory to satisfy current demand which will cause prices to moderate
and sales volumes to increase.