The Enigma Of Housing Inventory

July 11, 2016

The lack of inventory in the national housing market is no secret, but the anticipated hike in home prices hasn’t been as dramatic as previously expected. In most markets, there has been an increase in starter, trade-up, and premium home values, but this isn’t the case in all markets. A lack of demand has shadowed the lack of inventory, and as a result, real estate prices are dropping in areas like Columbia, SC, Charleston, SC, and Kansas City, MO.

Following the rules of supply and demand, changes in home values aren’t just determined by a change in supply—prices are also affected by the number of active homebuyers searching for a home. Actually, in 20 of the 74 markets that experienced a drop in inventory, demand has fallen and so have prices.

Of the markets mentioned, Charleston in particular has a seen a dramatic dip in home prices, with listing prices decreasing 5.1 percent over the last year despite 21 percent fewer homes on the market.

But things aren’t always sunny on the other side of supply and demand. Correlating with the drop in inventory, the share of income needed to buy a median price starter home has increased 6 percent from 2015 nationally. The majority of markets are just as bad this year as they were in 2015, if not worse. Oakland, CA, Denver, CO, and San Jose, CA, top the list of markets with the largest decreases in starter home affordability, and have all seen a significant increase of additional income needed to afford a starter home.

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