The chief culprit is a national housing supply that remains at a 20-year low of 4.2 months — the time it would take to run out of homes for sale if no new units were added — down from 4.5 months a year ago. A six-month inventory is considered balanced.
Lawrence Yun, chief economist of the realtors group, expects supplies to stay low at least for the next year, making house-hunting more challenging for buyers and further pushing up prices.
Here's why:
Home building has been hindered by shortages of construction workers and available lots. The California wildfires and Hurricane Harvey in the Houston area and Irma in Florida will worsen the crunch as workers are diverted to repair and rebuilding projects in those areas, Yun says. More than 130,000 residential and commercial structures were damaged in the Houston area alone. The California fires damaged more than 7,000 structures.
Investors who scooped up homes after the real estate crash and are renting them out should be poised to unload the properties now that home prices have risen sharply and rents are leveling off, says Ralph McLaughlin, chief economist of real estate research firm Trulia. But many investors still seem to be reluctant to unload the houses and the largest real estate firms are seeking more capital to buy units, Yun says.
Profits on the sale of a house are tax-free up to $500,000 for married couples. But prices have risen so sharply in California, where supply constraints are most dire, for instance, that many homeowners who would like to sell are reluctant to do so because they fear hefty taxes on their capital gains beyond the $500,000, Yun says. That may temper a trend that McLaughlin anticipates of more baby boomers selling homes — and thus increasing supplies — and moving to retirement havens or downsizing.
The Federal Reserve has indicated it likely will raise its key short-term interest rate a third time this year, and has penciled in three more rate hikes in 2018. That could dissuade some existing homeowners with low mortgage rates from selling their houses and trading up to more expensive units that carry higher borrowing costs, Yun says. Three quarter-point hikes would boost the monthly payment on a $400,000 mortgage by about $165.
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