Existing-Home Inventory Lowest in 18 years

The Mortgage Corner

There aren’t enough home to sell. Sales of previously-owned homes tumbled in December as an ongoing inventory crunch became more worrisome with few homes to sell in parts of the country. Existing-home sales were down 3.6 percent for the month, though they were up 1.1 percent from a year ago, according to the National Association of Realtors. The NAR said November’s selling pace was revised down to 5.78 million.

The housing market performed remarkably well for the U.S. economy in 2017, said Lawrence Yun, NAR chief economist.

“Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand,” said Yun. “At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.”

Graph: Econoday

There are two major reasons for the lack of inventory. Homebuyers are rushing to close deals before interest rates rise further. The 30-year conforming fixed rate is now 3.75 percent for a one point origination fee and climbing, with its maximum single-unit amount raised to $453,100 this January.
And there is a labor shortage with many workers having left the construction industry during the Great Recession, which is slowing the construction of new homes. The lack of inventory has also been driving up home prices, putting many first-time homebuyers out of the market.

“The lack of supply over the past year has been eye-opening and is why, even with strong job creation pushing wages higher, home price gains – at 5.8 percent nationally in 2017 – doubled the pace of income growth and were even swifter in several markets,” said Yun.

Those high-end markets include California, where the median home price now tops $500,000, vs. the new national median price for all housing types at $246,800. So who can afford to live in California these days?

That’s the reason Facebook unveiled plans for the massive new construction project at its Menlo Park, California corporate campus, which is part of Facebook's plans to expand its home base. The 56-acre site, which Facebook bought in 2015 for about $400 million, is located directly across the street from Facebook's headquarters. It will offer 1.6 million square feet of housing, or 1,500 units.

"Facebook is a strong supporter of its local community and consistently recognized as one of the best places in the world to work," said a Facebook spokeswoman. "This project advances both goals, by providing our employees an excellent new housing option within walking distance to campus while investing in new housing opportunities in our local community."

Must any new affordable housing in California and other high cost regions now depend on private corporations? California’s state legislators just passed a bill that would ask voters in November 2018 to approve $4 billion in general obligation bonds to build rental housing for low-income families and fund other existing housing programs. The bond would set aside $1 billion for the state’s veteran home-loan program, which would otherwise run out of money in 2018, according to SF Gate.

But that’s a drop in the bucket for what’s needed to keep up with the state’s population growth. The nonprofit California Housing Partnership estimates that California still needs about 1.5 million more subsidized housing units to meet current demand.

Harlan Green © 2018

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