Below is an excerpt from the Housing section of our quarterly outlook report (subscription required), published last Friday.
We think the current housing market is badly constrained by a complete lack of inventory. As shown at below left, existing home sales have basically recovered to levels that prevailed in the early 2000s, and they're doing so with very little inventory. The most recent figures show homes available for sale (chart, middle left) meeting less demand than any month other than the peak of the boom in 2005.
This isn't leading to higher existing home sales because existing home sales are dramatically higher than new starts (incremental supply). As shown in the bottom left chart, there are 6 existing homes sold for every 1 started; still very elevated historically.
Tight supply is less obvious in the new home market but what is obvious is that turnover is very fast (i.e. very low time on market) and prices are very high on an absolute dollar basis. While the number of new homes sold every year is still barely one-third of the 2000s peak, price is now 15% higher for the median home.
Recently the median time on market for new homes registered an all-time low, and while it bounced in the shoulder season of the calendar we expect that figure to remain well below historical averages given tight supply.