Housing’s Perfect Storm

A confluence of events is coming together, weighing on homebuyers across the country.

Many of us remember the George Clooney movie titled “The Perfect Storm,” which was a story of a fishing crew caught in a unique weather phenomena, and who all ultimately perished. In October 1991, a nor’easter absorbed Hurricane Grace, and became one of the fiercest storms to hit the Northeast in decades. It was described by many meteorologists as an extremely unlikely confluence of weather events that produced “a perfect storm.”

The U.S. housing market is starting to look like its own perfect storm, as a confluence of events come together, weighing on homebuyers across the country. I reported recently that the Millennial generation is becoming a larger factor in the overall housing market, but they and many other homebuyers are facing multiple obstacles in their quest to buy a home. It is a rare combination of tight inventory pushing up prices against a backdrop of high demand.

Sales of previously owned U.S. homes fell to a seasonally adjusted annual rate of 5.57 million this past spring, when the March through May numbers are taken together. This spring selling season proved to be the most competitive in years, with a flood of new buyers entering the market at a time when inventory is near 20-year lows. The data suggest the home shortage could mean weaker sales activity than otherwise would be the case, based on the strength of the economy.

Economists agree that demand is easily outstripping supply in most of the country, making it harder for many prospective buyers to find a home to buy. There were 11% fewer homes on the market in June 2017 than during the same time last year, marking 24 consecutive months of year-over-year inventory declines, the longest such streak in two decades. Residential real estate prices also remained at historic highs, with homes selling for 9% more in June than a year ago, even as the pace of sales picked up. Sales have remained strong despite falling inventory levels, partly because buyers are pouncing on newly listed homes, which suggests it could be difficult for sales to continue to grow without an infusion of fresh inventory. Inventory has remained low partly because of sluggish new-home construction.

The total number of homes for sale has increased during the beginning of the summer home-buying season, as is typical, but it remains substantially lower than one year ago, as about 536,000 new listings hit the market in June. However, those homes are concentrated on the higher end of the market, failing to offer relief to the mid- and lower-price ranges where demand is greatest.

It looks like this confluence of events – tight inventory, high demand, and rising prices – looks to be with us for a while to come, and buyers should see this as a new normal. Housing clearly faces its own perfect storm for the foreseeable future.

Pierre Villere Pierre Villere

Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pvillere@allenvillere.com. Follow him on Twitter – @allenvillere.

By |2021-03-30T15:39:41-07:00July 10th, 2017|

Share This Story, Choose Your Platform:

Go to Top