Existing Home Sales Report

The most important data point revealed in the report was not sales but instead the inventory of homes on the market (supply). The report explained:

Total housing inventory climbed 2.2% to 2.28 million homes available for sale

That represents a 5.6-month supply at the current sales pace.

Unsold inventory is 6.0% higher than a year ago

There were two more interesting comments in the report made by Lawrence Yun, NAR’s chief economist,

“Rising inventory bodes well for slower price growth and greater affordability, but the amount of homes for sale is still modestly below a balanced market.” In real estate, there is a guideline that often applies. When there is less than 6 months inventory available, we are in a sellers’ market and we will see appreciation. Between 6-7 months is a neutral market where prices will increase at the rate of inflation. More than 7 months inventory means we are in a buyers’ market and should expect depreciation in home values. As Yun notes, we are currently in a sellers’ market (prices still increasing) but are headed to a neutral market.

"New home construction is still needed to keep prices and housing supply healthy in the long run.” As new construction begins to be built, there will be increased downward pressure on the prices of existing homes on the market.

Takeaway: Supply is about to increase significantly. The supply of existing homes is already increasing and the number of newly constructed homes is about to increase.