SANTA ANA, CA—Homeowners are beginning to feel like they're prisoners in their own homes due to the dearth of supply, according to a recent report from First American Financial Corp. On the other hand, housing starts appear to be increasing, which could ease the situation a bit, another report from the firm states.
The lack of supply continues to hamper home sales. Potential existing-home sales decreased to a 5.96 million seasonally adjusted in November 2017, a 2% month-over-month decrease. This also represents a 98.3 percent increase from the market potential low point reached in December 2008.
In addition, in November, the market potential for existing-home sales decreased by 1.5% compared with a year ago, a loss of 93,000 sales. Currently, potential existing-home sales is 404,000—or 6.8%–below the pre-recession peak of market potential, which occurred in July 2005.
Mark Fleming, First American's chief economist, tells GlobeSt.com existing homeowners are the largest source of housing supply. “The more imprisoned they feel, the less likely they will put their homes on the market, meaning less housing inventory will be available to meet increasing Millennial demand.” Fleming says he expects prices to rise in a market with strong demand and supply shortages.
The headwinds that homebuilders face today are likely to persist in 2018, and innovative ways to build homes, unlike traditional approaches to homebuilding, will be the key to increasing industry productivity and increased production, adds Fleming.
The sellers' market we saw nationwide in 2017 is also likely to persist in 2018, he says. “We don't have a demand dilemma, but instead a supply shortage.”
Meanwhile, it appears that housing starts are on the rise. First American reports that the source of future completions reached a 10-year high, a positive sign for the housing market. Fleming says it's too soon to call this a definitive trend, “but I am hopeful that housing starts increase further in 2018 to add needed supply to the housing market.”
The more new housing is able to alleviate the supply shortage, the less house prices ill appreciate, which will of course benefit affordability, Fleming points out. And, he says, since renting is a “substitute” to owning, increased housing supply will attract more renters to own, which will reduce rent appreciation. A logical conclusion is that the increase in housing starts bodes well for future completions, which are a source of needed inventory in the housing market today.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
