Inventory and Prices Prevent Some Homeowners from Moving by Sandra Lane

Housing inventory nationwide dropped to its lowest level on record in the first quarter of 2017, according to the Trulia Inventory and Price Watch released today. The number of homes on the market dropped for the eighth consecutive quarter, falling 5.1 percent during the past year. Homebuyers have now been stifled by low inventory for the last two years despite prices rising to pre-recession highs in many markets.

The report states that, in fact, home value recovery may be limiting the supply of homes in the markets that have recovered the most value. It seems that homebuyers in markets with the biggest gains are facing the tightest supply.

Trulia analyzed the trends and direction of the housing market in the 100 largest U.S. metros from the first quarter of 2012 to the first quarter of 2017. From this analysis, the following information was obtained:

  • The number of starter and trade-up homes was 8.7 percent and 7.9 percent respectively, a 1.7 percent drop from last year.
  • Starter and trade-up homebuyers need to spend 2.9 percent and 1.6 percent more of their income than this time last year, and premium homebuyers only need to shell out 0.9 percent more of their income.

The Trulia report provided a few reasons why inventory is low: (1) Investors bought up much of the foreclosure home inventory during the financial crisis and turned them into rental units; (2) Price increases made it difficult for some existing homeowners to move up to a larger home; and (3) Slow home value recovery made it difficult for some homeowners to break even on their homes.

This is one of the first studies to discuss the relationship between home values and inventory. The conclusion is that too little recovery might make it difficult for homeowners to sell their homes, but easier to buy another. On the other hand, too much recovery makes it easy for them to sell, but difficult to buy another home.

The Trulia Inventory and Price Watch is an analysis of the supply and affordability of starter homes, trade-up homes, and premium homes currently on the market.

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