For the first time in over six months, the supply of homes for sale is beginning to rise.
While inventories are still down nearly 20 percent from a year ago, they did rise more than the seasonal norm from January to February, according to a new report from the National Association of Realtors.
The raw number of for-sale listings rose 10 percent month-to-month, and when seasonally adjusted, they were up 2.6 percent, the biggest jump in over two years.
"Tight inventory has been a critical issue for the housing market: The limited supply of homes has fueled bidding wars and has meant that buyers have little to choose from and agents have little to sell," said Trulia.com's Jed Kolko.
"Inventory has been tightening because construction levels are still low, adding little new housing stock, and homeowners are waiting to sell until they have more positive equity. This inventory spiral has been especially severe since prices bottomed."
Tight supply has pushed the nation's home builders to ramp up production far faster than they expected. That has increased costs, as they must now pay more for less available labor and for materials. Miami-based Lennar this week reported a 34 percent jump in new orders.
"We've been producing homes at about 5-600,000 a year, we probably need 1.25 million to keep up with normalized household production and population growth," Lennar CEO Stuart Miller told CNBC. "There's no question we are in recovery."
So the increase in supply is welcomed news, as the severe lack of homes for sale has been pushing home prices higher faster than anyone expected. That swift jump in prices, along with low supply, have been hampering sales, which were up just 0.8 percent month-to-month in February, missing analysts' expectations. Single-family home sales were actually weaker, while condo sales jumped nearly 9 percent from January.
"Rapid price appreciation is not good news for home buyers," said Lawrence Yun, chief economist for the NAR. "Wages are up just 2-3 percent, while prices are rising 4-5 times that."
With the increase in supplies came a return of all-cash investors, who had been moving out of the market, causing sales of homes on the low end to plummet. Investors made up 22 percent of home buyers in February, according to the NAR, up from 19 percent in January. All-cash sales hit 32 percent, up from 28 percent, and distressed home sales also increased to 25 percent of all sales, from 23 percent.
Low inventory has kept first-time home buyers, who largely seek lower-priced homes, out of the market. Newlyweds Brian and Ali Earle have been looking for a home in Northern Virginia for almost a year.
"There's not a lot out there," Brian said. "It's actually amazing. We see houses go under contract in a day or two, and so we really have to be on top of the game and be willing to drop everything and run and go check out a house, or it'll be gone."
Brian and Ali are qualified for a mortgage, but many sellers today still favor the all-cash deal. That puts them at even more of a disadvantage.
"Everywhere we've looked there are at least five or six offers going in within a 48 hour period," Ali said. "It's a little stressful."
Faced with competition from cash-heavy investors, first-timers represented just 30 percent of buyers in February, compared to a more normal 40 percent historically.
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