Declining home inventory a double-edged sword

Property supplies continue to thin across the country, leaving buyers with fewer options to purchase homes.

Property supplies continue to thin across the country, leaving buyers with fewer options to purchase homes. However, this development has slowly pushed prices higher. 

During the month of July, the home inventory declined nearly 19 percent from a year earlier to just 1.96 million units, according to a National and Local Market Trends report from While this may seem like a sizable supply, it was still well below the peak inventory level of 3.1 million units recorded in September 2007.

As a result of the dwindling inventory, the median sales price of single-family homes, condominiums, townhouses and co-ops increased 2.63 percent during this period, to $194,900, the report said. However, property values are still struggling to return to the peak median price of $250,000, also experienced in 2007.

This decline in supply and rise in prices could be an indicator that the housing market has finally hit bottom and could be in recovery mode after years of instability.

Meanwhile, since there were fewer homes available, buyers were more competitive with each other, resulting in quicker transactions. Last month, the average property sold last month spent just 88 days on the market, the report said.  

Mortgage application activity declines

Although fixed mortgage rates continue to hover near all-time lows, the dwindling property inventory may have caused a drop in loan application activity during the week ending August 10.

During this period, purchase requests fell 2 percent from the previous week, according to a report from the Mortgage Bankers Association. This was accompanied by a 5 percent drop in refinancing. As a result, the overall share of refinancing accounted for just 81 percent of mortgage activity. 

Housing affordability at an all-time high

The current relationship between property values, mortgage rates and median household incomes has pushed affordability to record highs this year. Improvements in the economy gave consumers increased financial safety and soundness to make major investments, such as purchasing homes.  

With prices building momentum, this could bring many currently underwater homeowners out from under the thumb of negative equity and allow them to sell their properties, causing growth in the national inventory.

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