• While home sales slowly recover to their pre-recession average, tight inventory continues to plague buyers and hold back growth. We encourage President-Elect Trump to focus on policies that encourage existing owners to sell and homebuilders to build, rather than fixating on policies that boost demand.
  • If home sales are to drive up to their pre-recession levels, we’ll need to see inventory continue to pick up, not fall. October’s 10.4% fall in inventory over last year is yet another reminder that the housing market still faces headwinds towards a full recovery.
  • President-Elect Trump could help boost inventory by implementing policies that would encourage investors to sell homes they bought during the foreclosure crisis, many of which are suitable for starter home buyers. Such policies could include a reduction in capital gains taxes for homes sold by investors to owner-occupiers, an increase in tax rates on rental income, or both.

Existing home sales increased 2% in October, increasing for the second straight month. When compared to the pre-recession average and adjusting for the fact that there are more households in the U.S., October’s numbers are about 86% back to normal, up from 84% last month.

Existing sales are slow to come back because of persistent low inventory. The number of homes on the market fell yet again in October, dropping 10.4% year-over-year. However, inventory still appears to be showing signs of growth when controlling for seasonality and the number of households in the U.S. When taking seasonality and the number of U.S. households into account, existing inventory increased slightly from September, but is still only 67% back to normal, up from 65% last month.

How could President-Elect Trump help boost inventory? Amongst other policies, he could incentivize investors to sell homes purchased during the foreclosure crisis. Such incentives could include capital gains tax breaks on homes sold by investors to owner-occupiers, tax increases on rental income, or a combination of both. While not a silver bullet, when combined with demand-side incentivesthese policies could help buoy demand for, and supply of, starter homes. We encourage President-Elect Trump to focus on policies that encourage existing owners to sell and homebuilders to build, rather than fixating on policies that boost demand, since addressing the latter without the former could lead to price increases and a drop in affordability.