PhotoSales of existing homes suffered their biggest drop in three years in January, but the news was bad for consumers trying to buy homes, not those trying to sell them.

In short, the 3.2 percent decline in home sale transactions from December, and the 4.8 percent drop from January 2017, was not caused by a lack of demand from buyers but a lack of available homes from sellers.

Lawrence Yun, the National Association of Realtors' chief economist, says the drop in sales highlights what he calls a glaring inventory shortage.

“The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” Yun said.

Again, that’s good news if you're trying to sell a house but not so good if you're a buyer – especially a first-time buyer. Inventory is lowest in the entry-level housing market.

Rising home prices

The median price for all existing homes was $240,500 in January, up 5.8 percent from January 2017. With fewer homes on the market, the law of supply and demand is pushing prices higher.

The total housing inventory in January was 9.5 percent lower than a year ago. It's been down for 32 straight months, with only a 3.4 month supply of homes on the market last month.

“It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth,” Yun said.

Not enough homebuilding

Yun returns to a common theme from the last several years; until builders start putting up more new homes, inventory levels will remain constrained.

“The underproduction of single-family homes over the last decade has played a predominant role in the current inventory crisis that is weighing on affordability,” Yun said. “However, there’s hope that the tide is finally turning. There was a nice jump in new home construction in January and homebuilder confidence is high.”

The U.S. Census Bureau reported last week that housing starts for new homes rose 9.7 percent in January over December and were up 7.3. percent from January 2017.

So far, however, most new construction has been for the move-up and luxury markets, with fewer homes for first-time buyers. Facing higher costs for land and labor, builders have recently focused on homes with a higher profit margin.

In 2005, at the height of the housing bubble, the Census Bureau reported 2.15 million building permits for homes were issued in the U.S. That number dropped to just 583,000 in 2009 and had only recovered to 1.26 million by 2017.

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