I’ve been obsessively searching for a new home ever since my third child was born last summer. I can’t stop looking at the listings in my neighborhood (we won’t leave it). The tough thing is, the listings almost never change. There are about three houses in my price range that have been on the market ever since I’ve been looking that won’t sell for one reason or another. Every other time a reasonable house gets listed, it gets bought right away. Just last week my husband and I were outbid on a house that had been on the market for 12 hours. Now I know why.
According to Bloomberg.com’s Economic Calendar, the supply of existing homes sold in March reported lower than analysts expected. The report, released today, showed that sales were at a 4.92 million rate, down slightly from the previous month. The reason for the lower sales data is that the supply of homes on the market is very low. The supply of existing homes for sale in March was 4.7 months worth, which is down considerably from the supply in March of 2012, which was 6.2 months worth. During the housing crisis the supply was closer to 10 months worth, as evidenced by the “for sale” signs in every other person’s yard. At that time the fear was that housing would continue to spiral out of control and never return to normal.
The good news is that the lower volume is expected to do very good things for prices. When the supply is low, but the demand is high, prices will rise. Hopefully that will help my current house when we sell it.
There are a number of very hot housing markets right now. Bidding wars on houses are the norm in these areas. It appears that the forces of supply and demand are at work here. It’s hard to believe that just a few years after the depths of the housing crisis, there could be bidding wars, too low of a supply, and rising prices. Markets change quickly, which is a reminder that investments that are either volatile or ill-liquid should have longer time frames. For houses, a reasonable expected holding period is five years.
Harli Palme, CFA, CFP(r)