There’s a Shortage in Homes For Sale Going into 2020

December is not the most popular time to list a home for sale historically, but this past December it was particularly unpopular.
The supply of homes for sale was 12% lower compared with December 2018, according to realtor.com. The decline was much steeper than the 9.5% annual drop in November. Buyer demand is so strong, that whatever is on the market is going quickly.
The shortage of homes for sale is worst on the low end of the market, but the supply drain is actually accelerating across all price tiers, including the most expensive homes.
In December, the supply of entry-level homes, those priced under $200,000, fell 18.1% annually, a larger drop than the 16.5% decline in November. In the midrange, the supply of homes priced between $200,000 and $750,000, dropped 10.2% annually, compared with November’s decline of 7.4%. At the top, the number of homes for sale priced over $1 million fell 4.4%, compared with November’s 2% decline.
“The market is struggling with a large housing undersupply just as 4.8 million millennials are reaching 30-years of age in 2020, a prime age for many to purchase their first home,” wrote George Ratiu, realtor.com senior economist, in a release. “The significant inventory drop we saw in December is a harbinger of the continuing imbalance expected to plague this year’s markets, as the number of homes for sale are poised to reach historically low levels.”
The overall supply drop in December represents a loss of about 155,000 listings compared with the previous December, and the number of new listings is also shrinking. The reasons for that are manifold: Older Americans are increasingly choosing to age in place, rather than sell their large homes. High prices are keeping potential move-up buyers from listing their properties. And, perhaps the most dramatic change in the market over the last decade, investors have turned about 5 million homes into single-family rentals. Those homes are largely out of the for-sale pool now.
Of course all real estate is local, and some markets are seeing supply drop more dramatically than others. Here in Atlanta home values have risen by 4.8% over the past year and the Atlanta real estate market forecast is that the prices will continue to rise by 6.6% within the next year
Short supply signals higher prices ahead, especially as demand picks up in the New Year. Mortgage rates are still very low, giving buyers more purchasing power and fueling that demand further. After shrinking for much of last year, price gains began growing again last fall and will likely continue until more supply hits the market.
The nation’s homebuilders will help some, as they ramp up production, but it is unlikely to be enough. New construction also comes at a price premium to existing homes. Builders are starting to pivot to lower-priced products, but the bulk of building continues to be in the move-up and higher end of the market.