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Why is their a Supply Problem in the US Housing Market

US Housing Market Weakens
US Housing Market Weakens

The US housing market continues to underperform as numbers were weak again in the month of February. There was only a small move higher in January but total sales are well below expectations for this year. Oddly, one cannot blame the weather. Supply is the problem.

There are only 1.89 million units for sale. This is down from last year and below the current demand level. Listings for January into February usually rise and average of six percent. This year the number was only up less than two percent. Making the problem all about inventory and local builders are out of the game because they cannot get credit.

Larger builders cater to a higher end market and this means there is very little lower-end units for first time buyers. Move-up sellers are no help here as they buy the minute they sell. Therefore they do not change supply. The lack of supply is pushing prices higher as well. Home prices ae up 7.5 percent in 2015 to a median home price of $202,600 in February. This acceleration is not good for the overall economic recovery of the United States. Affordability has been helping the housing market, now that is weakening. The price of a home is becoming a roadblock to many first time buyers. There is also an increase in rents that is not helping. Higher rents mean people cannot save to make a purchase.

There is an expectation that the number of listings available will move higher over the coming months. However the increase in home prices will determine sales. There are many cash strapped buyers out there who are still sticky looking for value.

What has made a difference till now is that first time buyers have made purchases with a relative price point to that of renting. This is going to change and we should see housing recover at some point. At some point it will make sense to buy as renting becomes too expensive. However, this rise in household prices needs to subside for this to happen.

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