The Reason Housing Inventories Remain So Low

California existing-home sales – The number of homes sold in May plummeted as home prices continued to appreciate at a near double-digit pace!

The California Association of Realtors reported that existing-home sales totaled 377,790 on a seasonally adjusted annualized rate in May, down 9.8% from April, and down 15.2% from last May. Existing-home sales year-to-date through May are down 8.9% from the number of homes sold in the first five months of 2021.

The statewide median price paid for a home in May was $898,980, up 1.9% from April, and up 9.9% from May 2021.

There was a 2.1-month supply of homes for sale in May, up from a 1.8-month supply of homes for sale in April, and a 1.8-month supply in May 2021.


Pending sales which represent new contracts signed declined 30.6% in May. That’s an alarming drop which is similar to what we saw in the first month of the pandemic when the shutdown was announced. We watch pending sales to forecast sales 30-60 days later. This is due to a shortage of homes for sale, increasing interest rates, lower affordability, and some erosion of confidence, but it’s impossible to say which of these factors are most impactful, especially with prices climbing at such an accelerated rate.


There are still several reasons people are not putting their homes on the market and moving at a normal pace. They are:

  1. 1. Taxes. With prices, so high many people have far exceeded the $250,000/$500,000 gain exclusion. Their taxes are about 37% of the gain over the exclusion. They just can’t sell and buy another if they need to pay the 37%.


    2. They fear that they won’t find a home to buy due to low inventory.


    3. They don’t want to give up their low-interest rate loan and pay a much higher rate on their new home.


    4. They are uncertain about the future.

    When people don’t sell it keeps inventory low. That forces prices up, even when affordability drops. There is not a lot that can be done except raising the amount of gain that’s exempt from taxes or allowing sellers to defer those gains to their move-up home much as they could do with an investment property. The $250,000 for a single taxpayer and $500,000 exemption for a married couple filing a joint return was set in 1995. It’s never been increased to allow for appreciation and inflation, yet the prices of homes are four times higher than they were in 1995. A change in tax law will create more sales and stabilize prices the day it’s enacted!