Home Sales May Hit Speed Bump Due to Lack of Inventory

Despite how housing has been over the last year, there’s been one thing consistently holding housing back from even greater heights: a lack of inventory.

The demand is there, but the supply just isn’t keeping up. And now, it appears that those chickens have come home to roost.

New data from the Nation Association of Realtors shows that pending home sales, an indicator of future home sales based on signed real estate contracts, fell in January, with “inventory constraints” listed as the primary cause.

According to the NAR data, pending homes sales decreased by 2.8% in January 2021 compared to December 2020, meaning that home sales could decline over the next few months.

The potential decline comes on the heels of sales of both new and existing homes increasing in December and January.

It should be noted that even though pending home sales fell in January when compared to December, contract signings where still up by 13% over January 2020, a sign of how hot the market still is.

But according to NAR Chief Economist Lawrence Yun, pending sales could have been even higher if there were simply more homes for sale.

“Pending home sales fell in January because there are simply not enough homes to match the demand on the market," Yun said. "That said, there has been an increase in permits and requests to build new homes."

As Yun noted, construction of new homes is expected to hit a 13-year high this year at a time when inventory is sorely needed. Yun also noted that there has been a “consistent rise” in permits for single-family house construction for eight straight months.

"There will also be a natural seasonal upswing in inventory in spring and summer after few new listings during the winter months," Yun said. "These trends, along with an anticipated ramp-up in home construction will provide for much-needed supply."