Low Inventory May Drive Prices Up

Low Inventory May Drive Prices Up

For the first time in 16 months, inventory of homes available for sale dropped last month, according to the National Association of REALTORS®. Although the decline was slight, less than 1 percent, per month, the drop does indicate “a reversal to the general growth of listings that had been occurring throughout 2014,” writes Lawrence Yun, NAR’s chief economist, at the Economists’ Outlook blog. “More inventories are needed, not less. Or else, home prices could re-accelerate.”

In the month of December, the supply of existing-homes on the market was 4.4 months; 6 months is considered healthy by most economists’ standards.

By the end of December, 1.85 million homes were listed for sale, that’s an 11 percent decline from November and 0.5 percent drop from year ago levels, according to NAR housing data. A drop in inventory is common from November to December, but Yun notes “what is of interest is the year-over-year decline in inventory because this hints at possible acceleration in home prices in upcoming months.”

Home prices may have already begun “re-accelerating” in some markets, Yun writes. In spring and summer last year, the median price was rising at 4 to 5 percent. In November and December, the prices rose by 6 percent.

Source: National Association of REALTORS® Economists’ Outlook Blog (Jan. 26, 2015)