Good ol’ supply and demand. Usually, the dismal science is way over my head. Not so much this: The more demand exceeds supply, the more upward pressure there will be on prices. To wit: The median national home listing price grew by 15.4% year over year in January to $346,000, according to Realtor.com’s January housing report.
But the National Association of Realtors (NAR) reported last week that pending home sales nationally dipped 2.8% from December 2020 to January 2021. With interest rates just now coming off record lows and supposedly so many people on the move into bigger spaces and out of crowded cities, how can that be?
"Pending home sales fell in January because there are simply not enough homes to match the demand on the market," NAR chief economist Lawrence Yun explained in last week’s announcement about pending home sales.
That came just a few days after the NAR said that as of the end of January, housing inventory fell to a record-low of 1.04 million units, down by 25.7% year over year. In that report, on existing sales, Yun said, "Sales easily could have been even 20% higher if there had been more inventory and more choices."
Look west and south for the hotter markets
Of course, like news, all real estate is local, and the news of that slowdown in pending sales apparently hasn’t reached some markets. According to Realtor.com’s Housing Market Recovery Index, some metro areas are defying any signs of that slowdown, including Austin and San Antonio in Texas, Riverside and Sacramento in California, and Denver.
Plus, pending home sales -- which means a contract has been signed but the sale not closed -- were still 13% higher in January than the year before, and the NAR’s Pending Home Sales Index (PHSI), which measures activity using that month in 2001 as a baseline, hit 122.8 in January, an all-time high for the month.
On a regional basis, however, only the South showed an increase in its PHSI for January, up 0.1% in a month and 17.1% in a year to an index of 151.3. In the West, meanwhile, the pending sales index dropped 7.8% in January, to 104.6, but is still 11.5% above January 2020. The Midwest index slipped 0.9% in a month to 113.2 and is still up 8.6% from January 2020.
The NAR’s Northeast PHSI fell the most, 7.4%, to 101.6 from December to January but still is 9.6% above last year’s level.
The Millionacres bottom line
While the inventory of homes for sale has hit all-time lows, there are indications more could be coming on the market in the weeks and months ahead. For instance, the U.S. Census Bureau and Department of Housing and Urban Development (HUD) reported housing permits continued rising in January, even while tight lumber supplies hindered housing starts (and contributed to rising prices).
“There will also be a natural seasonal upswing in inventory in spring and summer after few new listings during the winter months," the NAR's Yun said in the pending home sales press release. "These trends, along with an anticipated ramp-up in home construction, will provide for much-needed supply."
Altogether, the NAR economist said, these point to the supply and demand imbalance in the residential real estate market easing as soon as midyear.
So, how will that affect home prices, which have been steadily rising since the Great Recession (107 straight months of year-over-year gains, the NAR says)? Well, it stands to reason that what goes up must come down. But that refers more to the immutable law of gravity than the price of homes, so only time and location will tell.