The low housing inventory meme must die
realtors consistently and falsely blame low inventory for weak sales. The truth is that prices are getting too high for many buyers to afford.
realtors follow an unwritten rule: never say prices are too high. Occasionally, they may say something about affordability, but realtors generally reserve that euphemism for their complaints about financing. In a realtor’s world, prices are never too high because high prices can always be overcome with “innovative” financing.
Since realtors never admit prices are too high, when prices really are too high, they must find some other plausible reason why sales slow down or prices fall. Right now, with an expanding economy finally pulling out of the Great Recession of 2008, we have low unemployment, more high-paying jobs, and near record low mortgage rates. Home sales should be much higher than they are given those conditions. So why aren’t sales any better?
It must be the lack of inventory, right? Wrong.
Perhaps it’s [insert random headline here]. That’s how realtors or market forecasters think.
Or maybe, just maybe, home prices are so high that many marginal buyers can no longer afford to pay them. And since the “innovative” financing tools (toxic mortgages) are not available, when prices are too high, sales necessarily suffer even under the best of conditions.
Let’s be realistic. The entire low inventory meme is nonsense spouted by the realtor association because they don’t want to violate their unwritten rule against stating the obvious — that prices are too high. Like the boomerang buyer meme, the low inventory meme should be allowed to die. Repeating this lie frequently doesn’t make it true.
BY: JANN SWANSON, Sep 29 2016
Pending home sales were unable to sustain the slight upward tick experienced in July and resumed their downward trend in August, declining by 2.4 percent. It was the third time in four months that pending sales have failed to exceed the previous month’s numbers.
Actually, that trend isn’t unusual at this time of year.
The National Association of Realtors said its Pending Home Sales Index (PHSI), a forward-looking indicator based on home purchase contracts signed, was 108.5 in August compared to 111.2 in July and at the lowest level since a reading of 105.4 in January 2016. August’s pending sales were also slightly (0.2 percent) lower than in August 2015. …
Lawrence Yun, again blamed the tight supply of available homes for “taking the wind out of the momentum of the housing market.”
Of course he did. Industry shills say what they are paid to say.
He said, “Contract activity slackened throughout the country in August, except for in the Northeast where higher inventory totals are giving home shoppers greater options and better success signing a contract. In most other areas, an increased number of prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages or disheartened by the competition for the miniscule number of affordable listings.”
Here he touches on the real problem: Housing inventory is abundant at prices buyers can’t afford. Starting in 2011, lenders made significant changes to their loss mitigation procedures. They dramatically slowed the processing of foreclosures, aggressively modified delinquent mortgages, and they stopped approving short sales, particularly if the borrower had assets.
As a direct result of these policies MLS inventory plummeted, and remaining homes for sale weren’t the must-sell inventory that plagued the market from 2008-2011, the remaining homes were can’t sell cloud inventory, suspended at prices buyers can’t afford. Any cloud inventory that appeared on the MLS weren’t really for sale unless the buyer was willing and able to pay the price the seller needed to get out from under their bad bubble-era loan.
Housing inventory has declined year-over-year for 15 straight months and Yun said evidence is piling up that without more new home construction the current housing recovery could stall. Properties in August typically sold 11 days quicker than in August 2015 and prices have risen year-over-year for 54 consecutive months increasing 5.1 percent in August. “There will be an expected seasonal decline in new listings in coming months,” Yun said, “which could accelerate price appreciation and make finding an affordable home even more of a struggle for would-be buyers.”
Is that an admission that prices are too high?
“Given the current conditions, there’s not much room for sales to march again towards June’s peak cyclical sales pace,” said Yun. That month existing home sales were the highest since February 2007 at a seasonally adjusted annual rate of 5.57 million units.
After the August dip in pending sales Yun expects existing-home sales in 2016 to be around 5.36 million, a 2.1 percent increase from 2015 and the highest annual pace since 2006 (6.48 million). The national median existing-home price growth is forecast this year to rise around 4 percent.
A 2.1% increase in sales and a 4% increase in prices sounds like a solid performance. What’s the problem here?
Pending home sales in the South declined 3.2 percent to an index of 119.8 in August which is 1.5 percent lower than in August 2015. The West saw a fall-off of 5.3 percent from July to 102.8, 0.6 percent below the previous August.
Earlier this month, NAR released a study showing that single-family home construction is falling behind job creation in 80 percent of the metro areas the organization tracks. When combined with the scant supply levels for existing homes, these tight inventory conditions continue to hamper affordability in many of the largest cities in the country – especially those in the West.
In the post Are homebuilders producing enough homes?, I noted that homebuilders always provide the number of units they can sell. If homebuilders believed they could sell more homes, they would certainly build them — they’re homebuilders; that’s how they make money.
The lack of inventory excuse fails to explain the problem. The real issue is that house prices are getting too high relative to incomes. Only record low mortgage rates keep the market afloat. Let’s hope the federal reserve doesn’t take away the punch bowl in December, or we will be greeted with many more excuses from Lawrence Yun next year.