Limited Inventory for Sale Means Invitation Homes Has a Tailwind – The Motley Fool

The economic data surrounding the housing market has been disappointing lately. New home starts are down, sales are light, and mortgage origination volume has collapsed. While these trends have been bad news for mortgage real estate investment trusts (REITs) and mortgage originators, what do they mean for single-family rental REITs like Invitation Homes (INVH -1.30%)?

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The U.S. is in a housing recession

The housing market is already in recession and has been since midsummer, according to the National Association of Home Builders, which publishes the Housing Market Index with Wells Fargo. This recession could have been triggered by the combination of rising interest rates and elevated home prices. Earlier in the COVID-19 pandemic, a large fraction of homebuyers were people looking to move out of densely populated cities, which led to a bull market in housing in other markets, especially in the Southwest and Mountain states. 

In 2022, that party came to an end as high inflation became the dominant economic story. Prices for raw materials soared and scarce skilled labor became even more expensive. The Federal Reserve responded by repeatedly hiking the benchmark federal funds rate at a pace it hadn’t used since the early 1980s. That pushed mortgage interest rates up, too, which left homes unaffordable for many would-be buyers. Home sales collapsed. 

The number of homes for sale is extremely limited

In its latest report on sales of existing homes, the National Association of Realtors said that there were 1.14 million homes for sale at the end of November. That amounted to a 3.3-month supply at the rate at which homes were selling — well below normal. Existing home sales fell to a seasonally adjusted annualized rate of 4.09 million, which was a decline of 35.4% compared to a year ago.

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