With mortgage rates dropping lower and lower, housing affordability is higher than ever. But home buyers looking to take advantage of low mortgage rates are facing an unexpected obstacle—a lack of inventory. The limited number of homes available for sale is reflected in the Pending Home Sales Index.

Still High?
In February, the Pending Home Sales Index fell by 0.4 percent to 104.8. But even with the drop, the index is still a healthy 8.4 percent higher than last year’s February numbers. What’s more, for the past 22 months, contract activity has posted gains above the previous year’s levels. Before January, the index last climbed past the 104.8 mark in April 2010, when the increase was a direct response to the deadline for the home buyer tax credit.

Low Supply
The index could climb even higher, but a limited inventory is constricting market activity. The trend should continue; economists with the National Association of Realtors predict the low inventory will impact existing-home sales throughout the year. Sales are only expected to rise by 7 percent in 2013 to around 5 million, a level that is close to the current level of sales activity. With fewer homes on the market, the index—which reflects contract signings—isn’t expected to change much over the course of the year.

Build More
New home construction could help relieve the shortage. NAR economists believe housing starts would need to rise by at least 50 percent from current levels to bring balance to the market. Many small home builders, however, lack the capital needed to expand their businesses, preventing them from adding to the supply of homes available for sale. The solution to the problem, according to NAR economists, is to apply clearer regulatory rules to construction loans taken out at small community banks and credit unions. With more new homes on the market, more home buyers will be able to take advantage of low mortgage rates.

The Time for Sellers
Low mortgage rates are encouraging home buyers to jump into the housing market, but a limited inventory is preventing many of them from signing contracts. This creates an ideal situation for home sellers. The fewer homes on the market, the less competition sellers will face, making it easier for them to market their homes to an audience of eager home buyers.

Speak to one of Luxury Homes of Las Vegas Specialists today –  call 702-588-6868.

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