LOS ANGELES (AP) — Hoping to buy a home that fits your needs and budget in the next few weeks? You might want to settle in for a long search.
The inventory of homes for sale nationally dropped to its lowest level in more than two decades last month. And a snapshot of this month so far isn’t encouraging, with the number of homes on the market running well below year-ago levels.
While fewer homeowners typically list their homes in the winter months, the ultra-low level of properties on the market now makes landing a home more challenging at a time when the housing market continues to favor sellers over buyers.
“Extraordinarily few homes (are) on the market, and that means home shoppers will really notice fewer options when they go house hunting,” said Jeff Tucker senior economist at Zillow. “And it means there’s more competition over the homes that do get listed.”
Coming off the best year for home sales since 2006, the height of the last housing bubble, the number of U.S. homes for sale stood last month at just 910,000, the fewest on records going back to 1999, according to the National Association of Realtors.
The holiday season, colder weather and surging coronavirus cases may have given some sellers reason to put off listing their homes last month. Another factor is simply that homes have been getting snapped up so quickly, often within days of hitting the market, that there are fewer listings that carry over from one month to the next.
Consider that in December 2019, before the pandemic, there were 40.5% more homes on the market than last month, according to Zillow.
Sellers haven’t been in a hurry to list their homes in the new year. New listings are down 10.1% so far this month compared to this time last year, while “active” listings overall are down 28.6%, according to Realtor.com.
“Real estate markets remain active so far this winter,” said Danielle Hale, chief economist for Realtor.com. “Data shows buyers continued searching the still-limited for sale home supply last week, which declined again along with new listings.”
Traditionally, homes are slow to hit the market during the winter months. The inventory typically picks up as the spring homebuying season starts in late February and then peaks in the summer.
That pattern generally held true over the past two years as the pandemic upended the economy and then helped fuel a homebuying frenzy as many Americans seized on record low mortgage rates to expand their living space. All told, sales of previously occupied homes reached 6.1 million last year and were up 8.5% from 2020, according to the NAR.
The sizzling housing market intensified a long-running demand-supply imbalance, however. And as buyers snapped up homes sometimes days after they hit the market, those still on the hunt were competing for fewer and fewer available properties.
While housing demand is expected to once again far outstrip supply this year, economists expect home inventory will rise off rock-bottom lows by the end of 2022.
Sellers who were holding off due to the omicron surge may list their homes this spring. Homebuilders are also expected to give the market a boost as they follow up a strong 2021.
Despite dealing with supply chain constraints and rising material and labor costs, U.S. homebuilders broke ground on nearly 1.6 million housing units last year, a 15.6% increase over 2020.
Construction of new homes has risen the past three months and seems poised to climb further. Applications for building permits, which can forecast future building activity, rose 9.1% to a seasonally-adjusted annual rate of 1.87 million units in December. That’s the strongest month for permits since last January.
Meanwhile, mortgage rates, which have been rising on expectations that the Federal Reserve will begin dialing back its monthly bond purchases to tame inflation, could make for a less heated market. Higher rates reduce buyers’ purchasing power, which could force some to stay on the sidelines, giving an edge to those with more financial flexibility.
“A lot of homebuyers are maybe going to be knocked out of the running by higher rates,” Tucker said.
This is likely to be more pronounced in pricier markets, such as San Francisco, Seattle and Boston, and less likely to limit buyers in the more affordable markets in the Sunbelt and Southeast, he said.
Higher rates could also dissuade some homeowners from selling, especially if they’ve bought or refinanced their home when mortgage rates fell to new lows early last year.
“They may decide to just stay put and that could hold back some of the inventory I otherwise would expect to hit the market this spring,” Tucker said.