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Housing Supply Increases As Home Prices Drop – WHY?

A Look Into The Current Housing Market

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The housing market is a fickle beast

First, let’s take a look at the home sales this year compared to last year in the months of Sept – December.  According to the NAR (National Association of Realtors), the inventory of homes for sale has increased.  Furthermore, the sales of existing homes has gone down during this time period.  This wasn’t the case for 3 years in a row leading up to this period.  In fact, the exact opposite was true: Inventory took a dip, while sales were drastically accelerating.  

According to Lawrence Yun, NAR’s Chief Economist:

“This is the lowest existing home sales level since November 2015. A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases. All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country.”

Interest rates can be your best friend, or worst enemy

Interest rates are still historically low.  However, time is of the essence if you’re looking to buy or refinance.  We’ve seen the traditional 30 year fixed rate increase almost a full point this year.  Fannie Mae, Freddie Mac, and the NAR are all in agreement that interest rates will continue to rise.  The FED has been talking about rate increases for awhile now, and plan on continuing on that path.

Doug Duncan, Fannie Mae’s Chief Economist said:

“The rise in [mortgage] rates paired with this very strong price appreciation absolutely is slowing housing,”

Inventory Mismatch

Prices on starter homes have seen a much greater appreciation in value over higher end homes.  In fact, it’s almost double.  If we look at the past 5 years, entry level home have appreciated by 47%.  Their higher end counterpart? – Only an increase of 24%.

According to the Institute of Luxury Home Market’s Luxury Market Report, the $1M-and-up price range is now experiencing a buyer’s market. This means that supply (inventory) has finally caught up with demand and buyers are in the driver’s seat when it comes to negotiations. Additionally, many listings in this price range have experienced price cuts in order to entice buyers to put in offers.

Let’s Wrap It Up

All the extra housing inventory coming to market will likely help normalize the market by allowing incomes to catch up to home prices. Interest rates are historically low, but will continue to rise in the short term.  If you’d like more information on the local market conditions, please let me know!

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About The Author
David Harney

David Harney has a passion for real estate and home renovation. A native of Lindenhurst, Illinois, David moved to Michigan during high school then attended Michigan State University and earned a Bachelor of Science degree in Economics. He began his career selling residential and commercial construction supplies which allowed him to build solid relationships with home builders, designers, and architects all over the Northern Chicago suburbs. An entrepreneur at heart, David launched D Michael Development, a residential building supply company, focusing on kitchen design, windows, and renovation. Expanding his business focus, David became a licensed real estate agent with Results Realty in Antioch, Illinois. He takes the time to listen to his clients to find out their wishes for a property and enjoys helping them find the perfect home for their lifestyle. His experience with home construction and renovation, knowledge of the area, and his ability to communicate effectively with his clients makes him one of the most sought-after agents in the area. In his free time, David enjoys spending time with his wife and friends. He also loves to play golf and racquetball and going camping or fishing. “I make it a point to not take on more than I can handle which helps guarantee individual attention to each of my clients. It’s important to me that every client feels like they’re my only client.” – David Harney, Results Realty

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