Lower Inventories
Equals Higher Prices:
Today's
rising prices have less to do with surging demand—though hard-hit markets in
Arizona, California, and Florida have seen significant investor appetite for
distressed homes—than with declines in the number of properties for
sale.
Inventories of "existing" homes—that is, ones that haven't just
been built—are at eight-year lows. New-home inventories are lower than at any
time since the U.S. census began tracking them in
1963. In some cities, there are one-third fewer homes listed for sale than a
year ago.
Here's why prices are rising: There are more buyers chasing
fewer homes, and—critically—fewer distressed homes, such as foreclosures. Low
inventory is one sign that housing markets may have reached a turning point
because many want to buy at the bottom but few want to sell. There are several
factors behind the low inventory. Banks have slowed their pace of foreclosures.
Investors have snapped up discounted properties that they can convert into
rentals. Home builders, struggling for several years to compete on price with
foreclosed properties, have added little in the way of new
supply.
Housing's progress is good news for the economy. Residential
investment has now contributed to U.S. economic output for the past
five quarters, which hasn't happened since 2005. In other words, housing is no
longer a drag, though it is packing far less of a punch than it normally does at
this point in the economic cycle. Rising prices also could help turn around
consumers' fragile psychology, an unpredictable but important factor that can
fuel more sales.
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