Inventories of previously-owned US homes fell to a 11-year low in December as eager Americans keen to take advantage of record low mortgage interest rates and depressed house prices snapped up existing supplies.
Total housing inventory at the end of December fell 8.5 per cent to 1.82m existing homes available for sale last month – the fewest since January 2001 – the National Association of Realtors said on Tuesday.
The inventory-to-sales ratio fell to a 4.4 month supply at the current sales pace, down from 4.8 months in November. This is the lowest housing supply since May 2005, near the housing boom peak, when it was 4.3 months.
Slow and steady job gains, record-low mortgage rates and higher consumer confidence have helped fuel home purchases. The housing sector is expected to add to economic growth for the first time since 2005.
Existing home sales – completed transactions of single-family homes, town houses, condominiums and co-ops – dipped 1 per cent to a seasonally adjusted annual rate of 4.94m last month, NAR said, fewer than expected. However, the December decline came after solid increases in the previous two months.
Sales were up 12.8 per cent from 4.38m units in December 2011 and last month’s level was the second-highest since late 2009.
Total existing home sales in 2012 rose 9.2 per cent from the year before. That was the highest volume since 2007, when sales reached 5.03m and was the strongest increase since 2004.
Homes at prices more than 30 per cent below their peak have caught the attention of investors, which has also sopped up supplies.
Private equity groups and hedge funds as well as local investors have poured billions of dollars into distressed US housing in the past year, aiming to renovate and rent family homes. They have been drawn by a rebound in home values and the US’s shift towards renting as tougher mortgage requirements and credit conditions are still keeping many potential homebuyers away.
Distressed homes – foreclosures and those sold at steep discounts – accounted for 24 per cent of December sales, up slightly from 22 per cent in November but still less than the 32 per cent seen in December 2011.
Additionally, inventories remain at ultra low levels as many potential home buyers are stuck in their existing properties and are unable to put their homes on the market. In January 2013, 10.9m US homeowners – representing 26 per cent of all homes with an outstanding mortgage – were seriously underwater, meaning they owed at least 25 per cent more on their home than it was worth, data from RealtyTrac showed.
“The lack of supply will continue to spur new residential investment, which will also benefit some parts of the manufacturing, retail and financial sectors,” said Harm Bandholz, chief US economist at UniCredit Research.
Although homebuilders are rushing to meet demand, new home construction still remains at low levels. Groundbreakings on single family homes jumped 24 per cent to 535,500 in 2012 from the year before, but this is still one of the lowest levels since record keeping began in 1959, further limiting supplies.
The drop in the inventory to sales ratio has sent home values up. The median price of an existing home was $180,800 in December, 11.5 per cent higher than the same month in 2011. This was the 10th straight month of year-on-year price gains, which last occurred between August 2005 and May 2006, and the strongest jump since November 2005.
