Supply of Homes Catching Up With Demand as Sales Decline

In case you hadn’t noticed, demand for housing has been outpacing supply in many areas of the country.

USA Today reported Saturday that the trend of too much demand and too few homes is starting to slow down in some parts of the United States. And that’s a good thing.

The newspaper said that in 21 of 24 major metropolitan markets tracked by residential brokerage ZipRealty, new listings outnumbered new sales contracts for the 30 days ended March 15.

This prompted ZipRealty CEO Lanny Baker to say, “Supply may finally start to keep pace with frenzied buyer activity."

Los Angeles homeowners, for example, put 16,170 homes on the market from mid-February to mid-March. During this same period, Realtors only initiated 9,533 sales contracts.

Areas in which sales outnumbered new listings included Las Vegas, Raleigh, N.C., and Washington, D.C., according to ZipRealty.

The supply of homes on the market stood at 4.7 months in February, up from 4.3 months in January. Realtors consider a six to seven-month supply to be a balanced market between buyers and sellers.

The tighter-than-normal supply has raised prices and even led to multiple offers in many markets. Conversely, as the supply side of the equation grows, it will become more of a buyer’s market.

The lower-than-normal supply of homes for sale causes a slowdown in the market. Buying a home is a big decision and buyers want as much choice as possible. When supply is down, those who are not desperate tend to wait. From a practical standpoint, of course, the fewer homes there are for sale – the fewer that are sold.

As if to emphasize that point, Bloomberg reported Monday that sales of previously owned houses fell 0.6 percent to a 4.92 million annual rate last month, based on figures from the National Association of Realtors in Washington.

On a historical basis, low mortgage rates, rising property values and employment gains have led to more home sales. The drop in the inventory, however, may be the force slowing down momentum.

David Sloan, a New York-based senior economist at 4Cast Inc., said, “The slowing is temporary. There is a shortage of supply. The housing market will revive.”

None the less, stocks fell after the report, with the SPDR S&P Homebuilders XHB ETF declining 1.2 percent Monday mid-morning.

Federal Realty Investment TrustFRT was down 0.4 percent at $112.88 while Vornado Realty Trust VNO was up 0.3 percent on the day so far.

Meanwhile, home builder Toll Brothers, Inc. TOL was down 2.8 percent and Lennar Corp. LEN, another home builder, declined nearly two percent on the day’s news.

As of this writing, Jim Probasco had no position in any of the mentioned securities.