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.
* 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.
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