Last year mortgage rates dominated the housing narrative. Now the main actor appears to be inventory.

That’s the takeaway from a host of data points revealed in the last week such as the unexpected increase in home prices and the unforeseen drop in pending sales. Add to that home builders’ first-quarter results, which surprised on the upside.

Underpinning all those metrics is a housing market devoid of enough homes for sale.

The result? A profitable break for home builders — and their stock investors. More misery for the homebuyers still hunting for a deal before everyone else.

“It’s supply and demand,” Sean Dycus, real estate agent for Mainstreet Properties, told Yahoo Finance. “What happens when the supply is low and the demand is there? You know what’s going to happen.”

SAN ANSELMO, CALIFORNIA - MARCH 22: A for sale sign is posted in front of a home on March 22, 2023 in San Anselmo, California.  Pre-existing home sale prices in the US dropped for the first time in 11 years.  The national average price of an existing-home fell 0.2% in February to $363,000.  (Photo by Justin Sullivan/Getty Images)

A for sale sign is posted in front of a home on March 22, 2023 in San Anselmo, California. (Photo by Justin Sullivan/Getty Images)

How bad is the shortage?

New listings of homes for sale fell 22.4% nationwide from the previous year during the four weeks ended April 23—one of the largest declines since the start of the pandemic, according to Redfin. Similarly, found the number of homes newly listed for sale dropped 20% versus a year ago in March.

“Put another way, the number of homeowners deciding to sell homes in March 2023 was roughly on par with the number in April 2020, when early-pandemic uncertainty caused many to put off major housing-related decisions,” Chief Economist Danielle Hale told Yahoo Finance.

Of course, mortgage rates play a significant role in the inventory story. A big reason there aren’t enough homes for sale is because current homeowners are deciding against listing their houses. They don’t want to give up the lower mortgage rate they have now.

Approximately 82% of potential move-up buyers said they felt trapped by their current low mortgage rate, a poll of over 1,200 potential sellers found in February.

“The challenge for the sellers is if they sell today, they’re likely to have to take a higher interest rate if they’re going to buy another house,” Doug Duncan, chief economist at Fannie Mae, previously told Yahoo Finance. “If they have to use any mortgage, then they’re probably gonna give away some of the equity they take out in the higher payment because mortgage rates are up.”

Inventory: Bad for homebuyers

What that means for buyers is that they will have an even harder time finding a house to buy. The latest stats bear this out.

Pending home sales for March dropped by 5.2% from the previous month, a bigger drop than expected, according to the National Association of Realtors. The group’s chief economist called the dearth of properties “a major constraint to rising sales.”

Meanwhile there’s a feeding frenzy for homes on the market.

The NAR found that a third of listings were getting more than one bidder and 28% of homes were selling above their list price. Altos Research found that the median price for new listings—and for homes in contract last week—increased from a week ago.

That syncs with two separate indexes last week showing national home prices unexpectedly rose month over month in February.

“There’s still many areas of the country where there are multiple offers being made, which is part of the reason that you don’t see house prices declining further than they do,” Duncan said. “There’s still pent-up demand…there’s just isn’t the supply out there.”

Inventory: Good for home builders

The crushing environment for homebuyers is a boon for home builders.

Sentiment among home builders is on the rise, for example, climbing in April for the fourth straight month amid inventory woes, according to the National Association of Home Builders.

“Currently, one-third of the housing inventory is new construction, compared to historical norms of a little more than 10%,” said NAHB Chief Economist Robert Dietz.

DR Horton (DHI) and PulteGroup (PHM) both reported better than expected results in the first three months of the year. DR Horton CEO David Auld said the spring selling season was “off to an encouraging start” and the builder recorded a 73% increase in net sales from the previous quarter.

“Although higher interest rates and economic uncertainty may persist for some time, the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable,” wrote DR Horton’s Auld in the press release.

PulteGroup also reported stabilizing cancellation rates, a decline in purchase contracts that was smaller than forecast, and an 18% increase in net new orders from first-time buyers.

PulteGroup President and CEO Ryan Marshall credited a change in “buyer psychology” that allowed the builder to pull back on incentives and post moderate price increases during the quarter.

“And then the biggest thing as I go back to, we’ve got a housing shortage in this country, and that hasn’t changed,” Marshall said of the company’s earnings calls. “And so in the places where we’ve been able to demonstrate value … we’re seeing some nice momentum on the sales floor… And that’s allowed us to be optimistic and bullish with our forward start projections and some of the things that we’ re anticipating to be able to do for the balance of the year.”

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz. Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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