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If you repeat a lie often enough, people will believe it, and you will even come to believe it yourself. attributed to Joseph Goebbels, Reich Minister of Propaganda in Nazi Germany

Housing Inventory Up, Sales Down

The second biggest real estate myth is the oft repeated refrain that a lack of housing inventory has held back the real estate recovery. The biggest real estate myth, one that has also been peddled incessantly, is that there is a housing recovery in the first place. As we have stated many times on this blog the housing “recovery” has been characterized by low demand, low existing home sales, low new home construction, low wage and job growth, lower home ownership rates, low household formation, low inventory, low first time homebuyer sales, low interest rates, low home affordability but higher prices.

The entire myth of a housing recovery has been based on one data point: higher prices.

It’s a lack of demand holding back the housing market, not a lack of inventory.*

The myth of the housing inventory shortage is told as follows: the housing market would see greater gains in sales and price appreciation if more inventory was available. The concept is misguided as greater inventory doesn’t create greater demand. Indeed, as more inventory his the market and exceeds the current demand, prices should drop.

In the current distorted real estate market, home prices have been driven up by artificially low interest rates that have pushed prices of the limited stock of homes for sale higher.

The charts below show that as more inventory hits the market, prices haven’t dropped (yet) but sales have.

a lack of housing inventory is not holding back the housing market chart

Housing inventory is increasing…….

home sales are falling despite an increase in inventory

Home sales are falling as inventory increases

* one reason there is a housing inventory shortage is because prices were driven too high during the housing bubble of the mid 2000′s (due to the Fed’s low interest rate policy) such that anywhere between 25-40% of homeowners still have underwater mortgages. Fed policy attempts to regain those unsustainable and unaffordable home prices via quantitative easing and a zero interest rate policy. This policy is destined to fail as home prices need to find a market price that people can afford. If homes are unaffordable, prices and sales will decline and the much touted housing recovery that never was will be officially over.

Further Reading:

The Housing Recovery That Never Was, Is Over

The Housing Recovery and The Law of Small Numbers

Why The Housing Recovery is a Farce- Illustrated by Two Charts

The Coming Supply/Demand Real Estate Inventory Reversal

Real Estate’s Underwater Downside Sticky Catch 22

How a Stock Market Crash Will End the Economic Recovery

Who Will Buy the Houses to Sustain the Housing Recovery?

Real Estate’s Underwater Down Side Sticky Catch 22

Waiting For Household Formation

Student Loans are Holding Back the Real Estate Market

Millennials Not Part of the Club

The False Housing Recovery of 2013

The Dark Side of Rising Home Prices

The Dark Side of Artificially Low Interest Rates

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