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3 Signs That Housing Inventory Could Soon Come Roaring Back

A shortage in housing inventory is fueling competition and driving up home prices. However, these three signs suggest a rebound isn't far off.

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Prices are increasing at a historic rate and more than half of houses sell for over asking price. It’s fair to wonder what’s driving a historically hot housing market, and also what will bring it down to a simmer.

Alongside rock-bottom interest rates and pent-up pandemic demand, housing inventory -- or lack thereof -- is playing a major role in driving up home prices.

However, recent housing reports suggest inventory could be poised for a rebound, bringing much-needed relief to a housing market over-saturated with demand.

Construction calls in the cavalry

Housing inventory was lagging behind demand in the years leading up to the pandemic, but fell substantially further behind in 2020 when construction came to a screeching halt and home buying accelerated.

In 2021, even as pandemic restrictions eased, construction struggled to gain footing due to supply chain issues and material shortages like timber. Although there are still kinks in the supply chain, the June Employment Situation Summary from the U.S. Bureau of Labor Statistics (BLS) suggests residential construction is largely back on its feet.

Construction employment as a whole decreased by 7,000 jobs from May to June, but the sector saw a gain of 13,000 residential specialty trade contractors. This comes after residential construction lost 2,900 jobs from April to May 2021, and represents a year-over-year gain of nearly 123,000 workers employed in construction.

In addition to more workers, the worst of the lumber shortage seems to be in the rearview mirror as falling prices signal an uptick in supply and a recovering supply chain.

Although not at full strength, residential construction is getting back on its feet which means new houses will be coming online at a faster clip to alleviate demand.

Home starts are on the rise

According to the latest BLS New Residential Construction report, the seasonally adjusted annual rate of single-family homes started and under construction grew from April to May, and are far exceeding last year’s levels. (Although the 2020 stats were greatly impacted by the pandemic.)

The rate of single-family housing starts jumped 4.2% from April to May. The May rate of nearly 1.1 million annual housing starts is 49.8% greater than the year before.

And the seasonally adjusted number of single-family homes under construction has increased each of the last 12 months. There were roughly 652,000 single family homes under construction in May 2021, a 27.8% increase from the 510,000 the year before.

Like single-family homes under construction, the seasonally adjusted number of units authorized, but not started has increased consistently all year. It reached 142,000 in May, a 3.6% month-over-month increase and a 52.7% year-over-year increase.

While the pandemic proved to be a lofty hurdle for residential construction, the industry seems poised to come roaring back.

It *should be* a great time to sell

In addition to newly-built homes, an increase in the sale of existing homes has the potential to bolster housing inventory.

In the June Fannie Mae National Housing Survey®, 77% of respondents said it was a good time to sell. That’s up 10 percentage points from last month and sets a new high for the last two years. If more than three-quarters of the population thinks it’s a good time to sell, as the survey suggests, it’s not a stretch to believe more homeowners will take advantage of a hot seller’s market by putting their homes up for sale.

However, the National Association of Realtors® (NAR) Confidence Index Survey  reveals a good deal of uncertainty regarding seller activity in the next three months.

  • 28% of Realtors expect seller traffic to be weak
  • 32% expect seller traffic to remain stable
  • 32% expect seller traffic to be strong
  • 9% don’t know

Between high prices, multiple offers, and quick sales, it’s hard to imagine what more sellers could want in a housing market. So, what are people waiting for?

One theory is that older homeowners are afraid of getting COVID-19 during the selling process and chose to wait for safer conditions. If that’s true, then listings should increase as more of the population gets vaccinated and COVID cases continue to decrease. And, if these hesitant buyers are in fact older, many are likely downsizing from single-family homes to more age-friendly options.

Between the strengthening residential construction sector and a possible increase in existing home sales, inventory could increase enough to ease demand and, in turn, tie a weight on soaring home prices.

*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.

Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.

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