Housing market supply is keeping prices from crashing

Housing inventory in the U.S. decreased between October and November this year, underscoring a housing shortage that some experts believe is helping to keep soaring prices from dramatically plummeting.

The National Association of Realtors (NAR) announced Wednesday that total housing inventory at the end of November was 1.14 million units. This was down 6.6 percent from October but up 2.7 percent from a year ago, when there were 1.11 million units.

“Unsold inventory sits at a 3.3-month supply at the current sales pace, which was identical to October, but up from 2.1 months in November 2021,” the group said in a release.

The potential, or lack thereof, for the U.S. housing market to crash has become a major point of discussion in recent months in light of elevated mortgage rates, soaring housing prices and inflation. Experts have repeatedly cited housing supply in the U.S. as a major difference between the current market and the market during the 2008 housing crash.

Back then, there was an oversupply, but this is not the case today. A Freddie Mac report released in May 2021 found that as of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units.

Separately, the NAR commissioned a report last year that found the U.S. had an “underbuilding gap” of 5.5 million to 6.8 million housing units since 2001.

Jerry Howard, the CEO of the National Association of Home Builders (NAHB), said during an interview on Fox Business on Monday that there is a shortage of first-time homebuyer housing in the market right now because it is nearly “impossible” to build.

He noted that construction costs have seen an uptick alongside general inflation in the country.

“Builders are in a quandary right now,” Howard added. “A lot of the smaller builders are starting to take on remodeling and renovation contracts just so they can keep their businesses going.”

While builders appear to be struggling, the housing deficit may be playing a key role in preventing the steep housing price declines that can characterize a market crash.

Kelly Mangold, a principal at RCLCO Real Estate Consulting, told Newsweek earlier this month that she does not believe another situation like 2008 will emerge “because we have still been under-building inventory.”

The low housing inventory is actually keeping prices in some areas “more stable than you would think just because there’s a scarcity,” Mangold said.

This doesn’t mean that housing prices won’t drop at all. Redfin predicted in its 2023 Housing Outlook that the median U.S. home-sale price would drop by 4 percent to $368,000 in 2023. But prices “would fall more if not for a lack of homes for sale,” the outlook said.

After the NAR’s announcement on Wednesday, Chief Economist Lawrence Yun told Newsweek that housing inventory levels decline each year toward winter before picking up again in early spring.

“So the monthly decline figures are nothing new. What is important is the year-over-year change, which showed a modest gain from the very tight supply. However, to be truly balanced between supply and demand, we need to see around 50 percent growth in inventory. That is why home prices are still showing some gains despite a quite sizable fall in home sales,” Yun added.

The NAR said that existing home sales declined for the tenth straight month in November, falling 7.7 percent from the previous month. The median existing-home price for all housing types increased 3.5 percent last month from November 2021, up to $370,700 from $358,200. Prices rose in all regions, the NAR said.