Decreasing inventories and increasing prices amid robust sales

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.

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.