The housing market continues to run hot more than a year into the pandemic, aided by record low levels of housing inventory and the fastest pace of annual house price appreciation since 2005, according to First American Chief Economist Mark Fleming.
“Inventory turnover – the supply of homes for sale nationwide as a percentage of occupied residential inventory – was low even prior to the pandemic, but dropped precipitously last spring,” Fleming said in a release. “Between March 2020 and March 2021, inventory turnover fell from 1.53 percent to 1.15 percent. That means that earlier this spring, only 115 in every 10,000 homes were for sale — a historic low.”
As a comparison, inventory turnover averaged 1.85 percent in the aftermath of the Great Recession from 2013 and 2019, Fleming said.
During the pandemic, housing demand soared thanks to record low mortgage rates. Homebuilders have tried to respond, he said, with housing starts in March increasing to their highest pace since 2006. Single-family housing starts alone surpassed their pre-pandemic pace for eight straight months.
“However, new home sales only make up approximately 10 percent of all home sales, meaning the relief new home supply can provide is small relative to the size of the overall market,” Fleming said. “Worse, builders face severe shortages of materials, such as lumber, which may slow home building momentum and drive up the price of a newly built home.”
As for the source of the remaining 90 percent of sales, existing homes, many homeowners opted to stay put during the pandemic. The average tenure length — the amount of time someone lives in their home — has hit a historic high of 10.5 years.
“As a result, the supply of existing homes for sale this March was 29 percent lower than in February 2020 (pre-pandemic) – just over a million,” Fleming said.
Even with some fresh inventory expected in in the spring, the supply shortage will be hard to undo, he said.
“It will take years of accelerated new home construction to close the gap from a decade of underbuilding, and an end to the pandemic by itself is unlikely to bring enough sellers to the market to bridge the gap between supply and demand. In short, the housing inventory shortage is here to stay,” Fleming said.