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Housing Availability: Supply Demand Economics

Tue Oct 27, 2020 on Blog

Housing Availability: Supply Demand Economics

For anyone who has been recently house-hunting, they will tell you the same story: the supply of available housing has decreased, increasing sale prices. According to a recent report, at the current sales pace, that represents only a 2.7-month housing supply which is the lowest since Realtors began tracking this number in 1982. While sales of existing homes rose higher than expected at 9.4% in September, that number potentially would have been even higher had more homes been available.

Factors to Consider

One reason for increased housing sales is low mortgage rates. Rates have been low for most the year and are about a full percentage point lower than last year. Low mortgage rates enable buyers with more purchasing power.

Another reason for increased sales is that, due to the Coronavirus, some people who are able to work from home are purchasing properties where they wish to live, increasing vacation and resort home sales by 34% annually.

While low interest rates allow for homebuyers to purchase homes priced higher than they may have ordinarily, the supply of homes has not kept up with demand. Sales of newly built homes in August rose 43% higher annually, but builders are having difficulty keeping up with the demand.  As a result, prices are rising due to increased labor, material, and land costs. The median price of an existing home sold in September was $311,800, 14.8% more than in September 2019.

Lawrence Yun, chief economist at National Association of Realtors, indicated that home prices are rising too fast, which could limit opportunities for first time purchasers in the future. Supply is weakest at the low end of the market, which is where prices are rising the fastest, yet sales are stronger on the higher end of the market where there is comparatively more supply.

What does this all mean?

As we all know, housing is dependent upon market forces. Low interest rates and supply and demand each effect the availability and affordability of home sales. The pandemic has also redefined our concept of home as more people are able to work at home, and people seek different home office space. How long housing sales will remain strong depend on whether housing starts, interest rates, and overall demand remains during these unchartered times, and whether people will continue to work from home as much once the pandemic subsides.

From the trenches,


Roy Oppenheim


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