Housing Trends Foreshadow Housing Shortage Ahead

Low mortgage rates shrink entry-level and mid-tier inventory levels in September 2019

SANTA CLARA, Calif., Oct. 8, 2019 -- Nearly two years after U.S. housing inventory hit its lowest levels in recorded history, the market is showing signs it may be headed for another shortage, according to realtor.com's September 2019 housing trend report released today. Data show increased demand from lower mortgage rates prompted a 10 percent year-over-year decrease in available homes under $200,000 and halted 18 months of inventory gains in the mid-market last month.

National inventory of homes for sale continued to decline in September, posting a 2.5 percent decrease over this time last year, and a faster rate of decline compared to August's 1.8 percent decrease. Driven by strong demand and short supply, entry-level homes priced below $200,000 have been steadily decreasing since May of 2014, which continued in September with a yearly decline of 9.8 percent. After 18 months of solid inventory growth, mid-market homes priced between $200,000 and $750,000 -- which make up the largest segment of inventory -- flatlined in September with 0 percent growth and are poised for their first decline next month.

"Buyers looking for their next home have faced the headwinds of tight inventory and a competitive market this year. While lower mortgage rates and the arrival of fall promised a reprieve, conditions continue to tighten as demand remains strong. September inventory trends, especially in the mid-market, may be the canary in the coal mine that we could be headed for even lower levels of inventory in early 2020," according to George Ratiu, senior economist for realtor.com®.

Finding an affordable home has been a challenge for buyers in recent years, but mid-market inventory in particular has seen some relief in the last 18 months. This month's data shows that recovery has halted, which should translate into increased competition for move-up buyers, not just first-time buyers.

"The mid-tier of housing represents nearly 60 percent of homes for sale on the market, making it a solid indicator of how tight inventory levels are in the U.S. After more than a year and a half of solid growth in this segment, we're seeing inventory levels stall out and flat-line. If, or better yet, when inventory in this segment begins to take a downturn, the vast majority of homebuyers are going to feel its effects as their options rapidly dwindle," said Ratiu.

Homes listed over $750,000 continued to grow by 4.7 percent year-over-year. However, if strong homebuying demand, fueled by lower interest rates, continues to persist into the fall, the inventory of homes in this upper-tier price range could also see declines by February of the coming year.

Price gains continued to moderate this month. The median U.S. home list price was $305,000 in September, 4.3 percent higher than this time a year ago. However, price growth is slower than last September, when the median list price grew by 7.3 percent. The pace of sales also remained at near record highs.The median age of properties on realtor.com® in September reached 65 days. The typical property spent one more day on the market compared to last September and two more than last month, in keeping with the seasonal trend of buying activity slowing in the fall.

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