December 2020

Decreasing inventories and increasing prices amid robust sales

MonthYear-over-year change in active inventoryYear-over-year change in median closing price
August, 2020-26.14%5.92%
July, 2020-26.01%3.72%
June, 2020-24.67%1.43%
May, 2020-21.87%1.90%
April, 2020-17.49%3.69%
March, 2020-14.52%4.67%
February, 2020-13.50%3.98%
January, 2020-13.93%3.64%
December, 2019-12.85%3.59%
November, 2019-10.51%4.04%
October, 2019-8.36%3.87%
September, 2019-6.52%4.11%
August, 2019-4.83%4.33%
July, 2019-3.02%4.30%
June, 2019-0.70%4.40%
May, 20190.96%3.98%
April, 20192.34%4.07%
March, 20193.19%4.13%
February, 20194.53%4.80%
January, 20195.03%5.30%
December, 20185.08%5.58%
November, 20183.89%5.32%
October, 20182.41%5.21%
September, 20180.56%5.21%
August, 2018-1.38%5.45%
July, 2018-2.72%5.79%
June, 2018-3.68%6.05%
May, 2018-4.70%6.80%
April, 2018-6.10%7.27%
March, 2018-7.14%7.56%
February, 2018-7.81%6.96%
January, 2018-7.83%6.38%

For the real estate market, the encouraging news is that home sales this August reached volumes not seen since the housing boom of 2006.Footnote2 Plus, sales figures through August of new, single-family homes surpassed the 1 million mark, a 43% increase over 2019.Footnote3

Years of limited construction and today's rising demand, however, have put pressure on the supply of existing homes. Based on August's rapid sales pace, for instance, active homes on the market would be depleted in less than three months. This is roughly half the six-month supply of inventory considered stable for both buyers and sellers.Footnote1

The ups and downs of supply and demand

The (red) bar graph above illustrates this steady downward slope of year-over-year (YoY) changes in active inventory. Starting from a healthy YoY growth rate of almost 5% in February 2019, U.S. home supplies quickly turned negative as the 2019 season heated up. By August 2019, active inventory was down nearly 5% from a year earlier. And by August 2020, the YoY descent was more than 26%!Footnote1

At the same time, YoY growth in median closing prices (blue bars) fluctuated within a narrow range of 3.6% to 4.8% over 14 months through March 2020. Then suddenly a spring-into-summer closing price roller coaster was set into motion by the onset of COVID-19. Our society's initial reaction was to nearly shut down, which culminated in June 2020 when YoY price growth slowed to 1.4%. This was quickly followed by a steep rise to 5.9% YoY growth in August,Footnote1 reflecting our nation's optimistic spirit, an awakening of pent-up demand and an exodus from many cities.

The road ahead

Other contributing factors to the current volatility include today's historically low mortgage interest rates, plus the Fed's commitment to keeping rates low; down payment affordability issues; builders limiting construction as they cope with increased lumber, labor and land costs;Footnote4 and boomers waiting out the health crisis before putting their homes on the market.Footnote5

Scholastica "Gay" Cororaton, a research economist for NAR, advises: "With intense competition, buyers have to be better prepared to make an offer, including already getting prequalified by a lender."Footnote6

With millennials poised to enter the home buying market, the demand is there. In this inventory-depleted environment, persevering real estate professionals will be the ones who prosper.

1 Corelogic, Inc. (2020). Real estate data, 2018-2020. Accessed October 2020.

2 "Home Sales Hit 2006 Levels, ‘Continue to Amaze,'" National Association of Realtors®, September 22, 2020.

3 "New-Home Sales Top the 1 Million Mark," National Association of Realtors®, September 25, 2020.

4 "Housing boom in U.S. threatened by shortage of homes for sale," The Philadelphia Inquirer, Prashant Gopal, September 25, 2020.

5 "CoreLogic Pending Index Indicates Annual Price Growth Accelerated in August and September CoreLogic Insights Blog," Bin He and Frank Nothaft, September 30, 2020.

6 "August Closings: Properties Averaged 3 Offers," National Association of Realtors®, September 29, 2020.

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