Housing Finance at a Glance: Monthly Chartbooks
The November 2020 edition of At a Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes updated figures describing the cash-out refinance share, effective guarantee fees charged on new acquisitions, loans in serious delinquency, and mortgage insurance activities.
Housing Supply Falls to Record Low Benefiting Home Sellers
The months’ supply of existing homes fell to an alarmingly low level of 2.5 months in October, threatening to undermine the opportunity of homeownership for many households. The lack of homes alone makes homeownership difficult, but the lower supply also increases home prices, reducing affordability. One subtle reason that sales prices rise when supply is low, is that buyers must pay a higher price relative to the seller’s asking price. This suggests that sellers are benefitting from today’s low supply conditions. However, key supply and demand trends suggest that sellers’ advantage could erode somewhat in the coming months.
The 2.5 months’ supply of homes, reported by the National Association of Realtors (NAR), means that, at the current sales pace, the inventory of homes nationwide will be exhausted in less than 3 months. The recent decline in months’ supply from 4.8 months in May partly reflects a rebound in home sales. After existing home sales volume fell to 3.91 million in May, it then rose by 75 percent to approximately 6.85 million by October. NAR reports, however, that the inventory of homes for sale in October was just 1.4 million, a series low.
Amid shrinking inventory, sales prices have risen. Since May, existing home inventory has fallen by 5.0 percent according to NAR, while sales prices have risen by 1.3 percent according to Urban Institute calculations of Black Knight data. Since January 2012, when housing market activity began to sustainably improve after the sharp decline in the wake of the Great Recession, the inventory of existing homes has shrunk by 47.4 percent, while house prices have risen 56.4 percent.
While the increase in sales prices tells us that demand is high, the sales-price to list-price ratio suggests that buyers are eager to purchase homes. As the inventory of for-sale homes has declined since 2012, the ratio of the sales-price to the list-price has increased. According to Redfin, the ratio of the sales-price to the list-price peaked in September 2020 at 99.4 percent, the latest month of data, a three-percentage point increase since February 2012, the first month of data. Inventory fell by 55 percent over this same period. In other words, as inventory has declined, the average homebuyer is paying a little closer to the sellers’ asking price.
The increase in the ratio of the sales-price to the list-price partly reflects a larger percentage of buyers paying a sales price that exceeds the seller’s list price. As inventory has declined since 2012, the share of buyers paying a sales price above the buyers asking price increased from 18.3 percent to 32.8 percent in September.
The housing market is tilted toward the seller, according to the current data, but that could change. There was a sharp rebound in single-family housing starts in recent months, suggesting that more supply is forthcoming. Additionally, the pace of purchase mortgage applications has moderated in recent months as COVID infections soar and the NAR Housing Affordability Index has fallen from its year ago level. Although the market currently favors sellers, their advantage could inch somewhat closer to balance in the near future.
October 29th chartbook call featuring speaker Ed Golding.
July 29 Chartbook call featuring Amy Crews Cutts; Slides from Amy Crews Cutts and Chartbook Slides
January 29th Chartbook call featuring Bob Broeksmit and Mike Fratantoni.
July 2019 (watch the July 29 chartbook call with guest Richard Green)
April 2019 (watch the April 29 chartbook call with guest Dave Stevens)
January 2019 (watch the January 30 chartbook call with guest Dave Stevens)