Expect inventory shortage to stick around in 2016

Homebuyers will likely continue to face limited choices of homes for-sale in the new year.

“A lack of housing inventory continues to drive developments in the market,” according to a new report by Capital Economics. “As demand has slowly recovered, low inventory levels have weighed on home sales and put upwards pressure on house price. Those tight conditions are only set to ease gradually over the coming months, in spite of a steady recovery in housing starts.”

There is a strong pent-up demand with a high number of 18 to 34 year olds still living with their parents, the report noted. But the limited number of homes for-sale will prove a big hurdle.

Pending home sales plateaued this fall as home shoppers struggled to find enough homes available for sale and as home prices were rising too fast in some markets, according to the most recent National Association of Realtors housing report.

While existing-home sales are projected to expand next year, ongoing inventory shortages and affordability pressures from rising prices and mortgage rates will likely temper sales growth.

“Many markets have experienced a low inventory of homes for sale along with strong buyer demand, which is sustaining upward pressure on home prices,” says Frank Nothaft, chief economist for CoreLogic. “These conditions are likely to persist as we enter 2016.”

But relief will eventually come. Capital Economics is predicting a pick up in housing starts over the next few years. By the end of 2017, researchers predict a rise of around 50 percent compared to current levels.