Low Inventory Could Lead to Rise in Home Prices

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A recent report from the National Association of Realtors (NAR) indicates that shortages in the U.S. housing inventory will lead to stronger price gains, but fewer home sales.

According to a February press release by the NAR, chief economist Lawrence Yun forecasts roughly 5.0 million existing home sales for 2013; however, price growth could exceed the 7 percent gain projected for this year if inventory remains low.

Previously, the NAR had expected 5.1 million existing home sales in 2013, while prices were forecast to rise 5.5 to 6 percent.

sold sign in front of home

“Favorable affordability conditions and job growth have unleashed a pent-up demand,” said Yun. “Most areas are drawing down housing inventory, which has shifted the supply/demand balance to sellers in much of the country. It’s also why we’re experiencing the strongest price growth in more than seven years.”

The NAR’s Pending Home Sales Index (PHSI), a forward-looking home sales indicator based on the volume of contract signings, hit 105.9 in January – the highest level the index has recorded since April 2010, when the home buyer tax credit helped boost demand. January’s pending home sales rose 4.5 percent from December and 9.5 percent from a year ago.

Here’s a video from NAR’s website, highlighting some of the PHSI’s key findings:

About ‘Seller’s Markets’:

As the nation’s inventory shrinks, home prices could see some impressive gains in 2013. Consumers are once again returning to the housing market, as economic conditions improve and mortgage rates remain low. These factors combined with a slimming inventory are the perfect conditions for producing a seller’s market.

A seller’s market occurs when there is a high level of demand for housing, but there are not enough homes to keep up with the demand. Because the homes that are on the market will be more sought after, the sellers are (theoretically) more likely to get a higher price. They may be able to set the price higher to begin with, they may be able to receive multiple offers in a short amount of time, or they may find their home the subject of a bidding war among two or more buyers.

The biggest benefit of selling a home in a seller’s market is that you will have less competition. Your home is likely to get more traffic, more offers and you may even be able to sell for a higher price. As for the biggest downside, selling your home in a seller’s market may also mean that you will be buying in a seller’s market. Hopefully, however, you will make enough money from your home sale to help pay for your next home purchase.

Anna Platz is an Editor at ForTheBestRate.com, a leading mortgage rate research website, as well as the Lead Contributor to GoodCentsSavings.com, a blog about budgeting and personal finance. Anna is immersed in the world of real estate, mortgage, and home financing and is here to provide valuable resources for homeowners and soon-to-be-homeowners on buying and selling real estate, researching a mortgage broker or lender, and securing a home loan. Check back often for news, updates, and remember that you can find today's current mortgage rates at ForTheBestRate.com. My Google Profile+

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