Despite depleted inventories, a new Redfin reports finds home tours, offers and overall demand are still holding strong.
Home tours and offers have historically responded to the ebbs and flow of available inventory – an almost “if you build it, they will come” mentality. In March, Redfin, examining the twenty-five markets the brokerage has a presence in, recorded a 25 percent increase in new listings and with it a similar rise in the number of home tours and buyer offers, which was to be expected. However, a month later in April, when new listing increases shrunk to a mere eight percent, Redfin researchers were surprised to see demand holding steady.
Dr. Nela Richardson, Redfin’s first and newest chief economist and author of the report, wrote that the typical reasons people and families decide to list their homes, meaning a job in a new city or needing more or less space, are being challenged by “the weak jobs in the market and decreasing home affordability.” So while demand remains, inventory is having a difficult time keeping up.
The Whole Picture
Redfin’s report went on to detail the broader situation, providing complementary findings to help paint a more clear picture of what’s driving and, ultimately, holding back more home purchases:
- Prior to the recession in 2007, the average number of monthly housing starts, referring to new home construction, was 1.74 million. Since 2008, the average has fallen to 719,000.
- In Redfin markets, customer tours dropped by only 2.1 percent in April, not at all corresponding to the 17 percent decrease in new home listings. Year over year tours are up 15.8 percent.
- In April, Redfin found that homes were typically sitting on the market for 34 days. Only three days more than the same time last year.
- The number of customer-signed offers were up 1.5 percent in April.
Demand vs. Supply
One of the surprising conclusions of Redfin’s report was regarding the length of which a home was staying listed on the open market.
“Homes listed on Seattle’s most trafficked streets that would typically be considered less desirable and in the past have been known to languish on the market have recently been selling in a matter of days,” said Febe Cude, an agent at Redfin.
The demand is there, Richardson argues, but the inventory simply isn’t deep enough to meet it, and won’t be for the immediate future – at least not before the end of the second quarter of 2014. One of the biggest issues, the report suggests, is the lack of what is commonly described as a “virtuous cycle.” This refers to the current housing demand incentivizing potential sellers to put their homes on the market and become homebuyers again themselves. In such a cycle, both demand and inventory are replenished simultaneously, which, if sustained, can led to a robust market like in 2005.
Redfin concludes the return to a virtuous cycle is unlikely in the short-term considering the slow increases to inventory being projected over the summer months. However, as demand continues to build, the incentive for homeowners to become sellers may be too much to ignore.