Growing scarce.

Photographer: Daniel Acker/Bloomberg

Want a New House? Good Luck

Jonathan Miller writes about the housing economy and other aspects of real estate. He began a real estate blog, the Matrix, in 2005, and has written a column for Curbed.com. He is co-founder of Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
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Much of the analysis of the housing market focuses on sales volume and price trends. These are important metrics, of course, but they really don't tell you much about market fundamentals because they are, to a great extent, derivative. 

To better understand the health of the market, we need to turn to Econ 101 and look at supply and demand.  

Let's just deal with supply for now, because it looks like this is an area that's shaping up as a problem for 2015. Consider the chart below, which shows the change in the inventory of homes listed for sale. Note that on a year-over-year basis, growth in inventory has been falling in recent months and now is contracting.

The reason for concern? There must be adequate supply to meet demand. Without it, the market might again experience the double-digit price increases of a couple of years ago, when there was a shortage of homes for sale. Although those price increases were viewed by many as a sign of the market's health, they were anything but; they ended up crushing affordability and kicking the housing recovery into a slower gear. 

What the decline in inventory suggests is that access to credit isn't easing, an essential ingredient for a robust housing recovery.  Sellers aren’t going to put their homes on the market if they can’t get financing for a trade-up, lateral move or downsize.  If this pattern persists, a broader housing recovery could be further away than we might have hoped. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan J Miller at jmiller@millersamuel.com

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net