November 23, 2018

2019: A housing market transition year with a 4-to-6-month inventory norm


Aaron Taylor
2018 NETAR President

There’s a real estate rule of thumb that holds during normal market conditions there’s a six-month inventory of homes for sale. Locally, we haven’t seen that on a consistent basis for about two years. So, the new inventory rule of thumb being bantered around is normal equals a four-to-six-month supply.

That gives the norm some wiggle room, but if the bottom side of that “new normal” becomes a reality, there will be a whole menu of norms to readjust.

The average inventory for the 11 counties monitored by the NETAR Trends Report since October last year was 4.9 months. The region saw inventory at or slightly above that in seven of the past 13 months. That’s a big change from the normal before home sales took off in May of 2015. The actual annual resales recovery date was 2013. That’s when annual sales moved past the 2008 pre-recession benchmark. But at the end of 2013, there was still an abundance of inventory. It took a little over two years of record level sales to absorb it.

Here's a timeline based on May’s inventory: During 2011 there were 13 months of inventory. In 2012 it had dropped to 12 months. By 2013 it was down to 10 months and stayed that way until 2015 when it dropped to nine months. By May 2016 it was down to seven months then five months in 2017 and finally four months May this year.

Stories about softer home sales have almost replaced inventory as the hot-button topic. Some writers are amping the conservations by wondering when the housing bubble with bust. That’s not a local topic because there isn’t and has not been a housing bubble. The only bubbles are in a few metro areas.

October’s Trends Report showed local sales were 2.8 percent better than October last year. There was 13.9 percent spike in the average sales price, but it was not reflective of the region’s price trend. The trend shows the average sales price is 4 percent better than the first 10 months of last year.

That’s a healthy appreciation. The long-term typical annual appreciation for U.S. housing is about 3.7 percent. Locally it’s a little less.  Our best annual appreciation was in 2012 and 2013 when it was 5.9 percent. October’s annualized price points to an increase of 4 percent or a little better depending on what happens with November and December sales.

The local market can probably look forward to a little better inventory picture next year because although resales are still increasing the growth rate is slowing. But since new home construction is not substantially adding to the overall inventory, it will take a while to get back to that six-month new inventory norm. Remember it took two years of strong sales to get to the six-month level so unless there’s an unexpected increase in population and shine comes off single-family rentals and apartment communities cool off quite a bit inventory increase will be a slow roll.

The upside to that favors price appreciation while the downside is the local housing affordability could take a hit.

The bottom line for next year’s U.S. and local housing market is shaping up as a transition year. That’s the kind of market that is going to demand more local context than past years because the odds are what you read or hear about housing in the mainstream media won’t be representative of local market conditions.