Home Prices Soar on Tight Inventory

“Recent data are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” said Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices. “This may represent a true secular shift in housing demand, or may simply represent an acceleration of moves that would have taken place over the next several years anyway. Future data will be required to address that question.”

Higher prices are a reaction to supply and demand. Tight inventory continues to push home prices higher as buyers vie for available homes. New home prices averaged $390,100 in November with inventory 11.2 percent lower than a year ago.

Existing home prices rose 12.9 percent to an average of $309,800 in December said the National Association of Realtors in its latest report. Inventory fell to 1.07 million, plummeting 23 percent from December 2019 and sliding 16.4 percent from November, representing a record low supply of 1.9 months. Sales in December were up 22.2 percent year-over-year.

“To their credit, homebuilders and construction companies have increased efforts to build, with housing starts hitting an annual rate of near 1.7 million in December, with more focus on single-family homes,” said NAR Chief Economist Lawrence Yun. “However, it will take vigorous new home construction in 2021 and in 2022 to adequately furnish the market to properly meet the demand.”

Material costs and supply chain issues are adding to the surge in home pricing. “While NAHB is forecasting further production increases in 2021, the gains will be tempered by ongoing supply-side challenges related to material costs and delivery times, a dearth of buildable lots and regional labor shortages that continue to exacerbate affordability woes,” noted Robert Dietz, chief economist at the National Association of Home Builders.