Existing Home Sales Reported Robust Growth in December

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Part 5
Existing Home Sales Reported Robust Growth in December PART 5 OF 5

Total Housing Inventory Fell to a Recent Low in December

Lower supply

The major issue with the housing industry in the United States today is the inadequate supply of houses in the market. Despite the availability of buyers, there is a clear demand and supply mismatch in the market. The market is not able to supply adequate homes due to a variety of issues.

Some issues with suppliers may be genuine, while others may be created by them to maintain lower inventories. In this article, we’ll discuss the existing housing inventory and its implication for the housing market.

Total Housing Inventory Fell to a Recent Low in December

Housing inventory

Total housing inventory in December 2015 fell by 3.8% year-over-year to 1.8 million units compared to 1.9 million units in December 2014. The inventory dipped to its lowest level since its recent low of 1.8 million in January 2013.

On a monthly basis, the total housing inventory fell sharply by 12.3% in December 2015 over November’s figure of 2.0 million units. This was the largest housing inventory fall on a monthly basis since December 2001.

Unsold inventory

Unsold inventory was at a 3.9 months’ supply in December compared to 5.1 months’ supply in November. This was the lowest housing supply since January 2005, when it was at 3.6 months’ supply. This sharp fall in housing inventory doesn’t bode well for homebuyers, as it could lead to a rise in prices.

With inventory falling, prospective buyers have no option but to continue renting. This bodes well for apartment REITs, which earn income by renting residential properties to tenants.

Investors can take exposure to the REIT sector by investing in the SPDR Dow Jones Global Real Estate ETF (RWO), which invests 3.3% and 1.6% of its portfolio in Equity Residential (EQR) and Essex Property Trust (ESS), respectively.

RWO also has exposure to Simon Property Group (SPG) and Public Storage (PSA), with respective exposures of 6.1% and 3.9%.


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