Backslide in Inventory Frustrates House Hunters

The number of homes on the market shrank for the first time in seven months

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Homebuyers in August found fewer options and made fewer purchases, as the number of homes for sale declined for the first time in seven months.

Key Takeaways

  • The number of homes for sale around the country dropped for the first time in seven months in August, contributing to a decline in the volume of home sales.
  • The decline in available homes undermines the slight cooling this summer in the hot housing market. 
  • A shortage of homes for sale and high demand have kept prices rising. 
  • More newly constructed homes might relieve the strain, but builders have been hindered by material and labor shortages.

The volume of homes on the market dropped to 1.29 million, 1.5% lower than in July, the National Association of Realtors said in its monthly home sales report Wednesday. Not coincidentally, the volume of sales dropped 2%, the first decline since May.

A slight increase in the supply of homes on the market cooled the hot real estate market a bit this summer, but the new data for August signals a return to a familiar pandemic trend: high demand for homes, but little to buy.

“It was no major surprise overall,” said Jennifer Lee, senior economist at BMO Capital Markets. “I was more surprised last month when (sales) actually rose.”

The number of homes for sale in August would last just 2.6 months at the current sales pace, the NAR said, well short of the 6-month supply that’s historically been associated with moderate price increases. It’s been a year since there was enough supply to last 3 months, and in pre-pandemic years, the average was 4 months.

Indeed, lower inventories tend to push prices up more rapidly, and that’s exactly what’s been happening. While the median sale price of a home dipped for a second month—falling less than 1% in August to $356,700 in a typical seasonal pattern—it reached new record highs in March, April, May, and June.

Further gumming up the market, people who want to sell their homes may be staying put because there are so few options for them to buy once they sell, Lee said. The relentless price increases may even provide an incentive for some sellers to hold out for more money, she said. And with the pandemic shift to working from home, and mortgage rates lingering near historic lows, demand isn’t going away any time soon. 

Relief may have to come from homebuilders, Lee said. 

Unfortunately for buyers, the pace of homebuilding actually slowed in August, with builders getting started on 2.8% fewer single-family homes than in July, the Census Bureau said Tuesday. Homebuilders have been hampered by the same kind of labor and material shortages that are currently plaguing everything from meat to computer chips to child care.

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