Low inventory will continue to plague housing market through 2016
- The shortage of housing inventory will continue to be the market's big story for the second half of 2016, Forbes reported.
- According to Zillow, May inventory of low- (8.9%) and middle-tier (9.7%) homes dropped from May 2015, while top-tier inventory fell 0.5%.
- In May, the annual rate of single-family home groundbreakings was 1.138 million, below the projected 1.5 million necessary to catch up to demand; however, builders are focusing on luxury homes, pushing those entry-level buyers looking for a starter home further out of the market.
Another factor influencing inventory, according to Forbes, is lack of housing for millennials, even though the 8% increase in entry-level home value should be pushing homebuilders to increase production. Piling on to the low-inventory dilemma is that fewer homeowners are selling. Experts said this is largely due to either the homeowner not being able to afford to upgrade to a new home or fear that they will sell their home and not be able to find another in such a tight market.
However, it's low inventory, combined with a strong job market and low mortgage rates that has kept demand for housing high. Also, as Forbes reported, it's still a smarter financial move to buy rather than rent. According to Zillow, interest rates would have to rise past 7% to make renting a better deal.
According to CoreLogic Chief Economist Frank Nothaft, the "stability" created by U.S. home price growth, up 1.3% from April to May and 5.9% higher than May 2015, is largely due to the tight supply of housing stock. Demand, he said, is sure to increase as continuing low mortgage rates resulting from the UK's Brexit vote spur increased housing activity.
Increased homebuyer interest in the coming months, no matter what the reason, will certainly make homebuying for many an even more stressful event, especially for first-time buyers looking for an entry-level home. Last month, Zillow reported that starter home values were outpacing those of higher-tier homes at twice the rate but that inventory for lower-tier homes had decreased by 9% from May 2015 to May 2016. This could be the explanation for the drop in May homeownership share to 30% for first-time buyers, even though, as the National Association of Realtors reported, existing home sales increased across the U.S. by 1.8%.
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