New listings hold the key to market momentum
Active listings are up year-over-year, but sales remain slow. Why? Because fresh inventory — not overall supply — spurs buyer activity, a new analysis finds.
What will it take to get the real estate market going again? More new listings, according to one economist.
In a recent report, Odeta Kushi, First American's deputy chief economist, identified a strong connection between the growth of new listings and existing-home sales, suggesting that an increase in overall supply isn't enough to spur homebuying activity.
Buyers want fresh supply: "The close link between new listings and sales underscores a fundamental truth about the housing market — the pace of existing-home sales depends not just on how many homes are available, but on how many fresh opportunities enter the market," Kushi said.
"Active inventory can rise when homes linger unsold, but that doesn't necessarily generate more sales," Kushi added. The numbers have borne that out: In recent months, a significant share of active listings have languished on the market for more than 60 days.
Filling up the tub: "A useful way to think about this is with the bathtub analogy — the water already in the tub represents active listings, or what's available at a given moment, but it's the water flowing in from the faucet, representing new listings, that creates activity and movement," Kushi said.
Diving into local market data: Among the top 75 U.S. metro areas, Kushi found a strong correlation between a rise in new listings and an uptick in home sales. When looking at overall active inventory and home sales, however, the link was much weaker.
Markets that have seen big jumps in both new listings and home sales include Knoxville, Tennessee; Oxnard, California; and Omaha, Nebraska. On the other end of the spectrum, active listings in Miami and San Jose are up more than 20% year-over-year, but new listings have fallen — and sales have declined by around 10%.
A rise in new listings doesn't always translate into sales, Kushi noted. El Paso and Stockton, a mid-size city in California's Central Valley, are examples of markets with higher-than-average new listings but lower-than average home sales, which Kushi attributed to affordability constraints and weaker demand playing bigger roles in those markets.
Sales down to a trickle: The decline in new listings this summer is happening at a time when home sales are at the slowest pace in a decade, according to Redfin data. That's leaving many Americans stuck in place, The Wall Street Journal reported.
'The future of housing activity will be shaped by….': So what will get listings flowing again? Two key factors, according to Kushi: the willingness of homeowners to give up their ultra-low rate mortgages, and personal events like changes in household size or job relocations that force a move.
"Ultimately, the future of housing activity will be shaped by the balance between these forces," Kushi said. "If the mortgage rate lock-in effect continues to dominate, the flow of new listings — and therefore sales — will remain limited. But, as life events accumulate and owners gradually adjust, fresh supply will return to the market and sales activity will pick up."