–Housing inventory is shrinking in many parts of the country, but shadow inventory is piling up
–On a national basis, listed inventory was down 20.4% in May, compared with May 2011, according to NAR.
–Some believe these shortages, as well as any subsequent rise in prices, are likely temporary
By Amy Hoak
In the Seattle area, it is not unusual for there to be multiple offers on homes in the most popular neighborhoods.
In Washington, D.C., some prospective buyers aren’t finding a home they want on the market so they are online daily,
hoping a new listing for a property with their requirements will appear.
Even hard-hit areas like Phoenix and Sacramento have seen substantial decreases in for-sale inventory.
It is quite a change of pace from the high inventories many markets have been experiencing for years. And it is
leaving Ian Bell, a buyer’s agent with First Exclusive in Seattle, to wonder “who flipped on the switch,” making it a
tougher market for buyers, especially during the past three months.
“Listing agents are… putting their houses up on a Wednesday and looking at all the offers on a Sunday afternoon,”
Bell said. Homes sell in a matter of days in some areas, he added.
It is a problem that Washington, D.C. resident Peter Wilson knows all too well. He was able to sell his home last
year–within a week–after putting it on the market after Labor Day. But since then, he has been a renter because he
can’t find a home he wants to buy in the Mount Pleasant neighborhood of Washington.
And given the tight market, some sellers aren’t even making much of an effort to get their home ready for sale, he
said.
“I went to one open house–it was like they decided the night before to put their house on the market,” he said. There
were dishes in the sink and a messy walk-in closet with clothes and toys completely covering the floor, for example. And
several bills were left out on the dining room table.
The home was off the market in a week, Wilson said.
Falling Inventories
On a national basis, listed inventory was down 20.4% in May, compared with May 2011, according to recent statistics
from the National Association of Realtors. There is a 6.6-month supply of homes, given the current pace of sales.
In some local areas, however, the plunge has been much steeper.
The inventory of homes for sale in King County, where Seattle resides, was down 43.8% in May, compared with a year
ago, according to Redfin, a national brokerage based in Seattle. In the District of Columbia, inventory was down 34.2%
over the year. Inventories were down 37.9% in Sacramento County, Calif., 34.3% in Maricopa County, Ariz., where Phoenix
is located, and a whopping 54.9% in Orange County, Calif.
Of course, it is important to point out that this inventory shortage isn’t being seen everywhere. In Cook County,
Ill., where Chicago is located, inventories are only down 3.9% over the year. And in Suffolk County, Mass., where Boston
is located, inventories are actually up 4%.
It is also important to remember that within markets there are areas that are more popular than others, and more
likely to have tighter inventories.
What’s going on?
There are a couple of trends that factor into why inventory might be shrinking in a growing number of places
throughout the country.
One is that there has been less foreclosure inventory hitting the market.
“The banks have dialed back the foreclosure spigot,” said Tim Ellis, real-estate analyst for Redfin. As lenders have
become more thorough in processing foreclosures, it has taken longer for homes to complete the foreclosure process.
Plus, there is a sense that banks are withholding some foreclosure inventory, not listing it as markets struggle to
recover.
Another reality of the market affecting housing inventory: Millions of borrowers are currently underwater on their
mortgages.
A recent report from CoreLogic found that of the 50 largest housing markets, those with a share of 50% or more
underwater borrowers have an average inventory of 4.7 months. Markets with less than a 10% share of underwater
homeowners have an average 8.3 months supply. CoreLogic is a provider of consumer, financial and property information.
“People who bought five, six, seven years ago, who in an ordinary market would be today’s sellers, are stuck. They
can’t afford to sell,” Ellis said. “There’s hardly any market where prices aren’t 20% lower than in 2005, 2006 and
2007.”
Tight lending standards might also be keeping people from selling their current home and buying a new one.
In some markets, a stronger local economy is creating more demand for homes–and helping inventories dwindle. Take
Silicon Valley, where newly created wealth as a result of the booming technology sector is boosting housing demand, said
Lanny Baker, president of ZipRealty, a residential real-estate brokerage.
Some hard-hit markets have been swarmed by investors buying up properties, helping to chip away at inventory.
“In Phoenix and Sacramento, it’s more like a glut of properties existed there a few years ago and has been gradually
worn down,” Baker said.
Why This Doesn’t Mean a Recovery
There are some who believe that these shortages, as well as any subsequent rise in prices, are likely temporary. There
is a whole mess of inventory out there–it is just not listed for sale yet, said Michael Feder, chief executive of Radar
Logic. Radar Logic’s Residential Property Index tracks daily home prices in 25 major housing markets.
The Obama Administration’s most recent housing scorecard indicates there were 2.54 million homes on the market for
sale in May, Feder pointed out. Meanwhile, there were 4.05 million vacant units held off the market in May. That doesn’t
even count the number of people who would like to sell but aren’t, because they are underwater on their mortgage or they
don’t want to sell for less than they believe the home is worth.
“That’s why we don’t buy the idea that we’re on the verge of a recovery. Any meaningful strength [in home prices] is
going to bring out this inventory and will crush the recovery,” Feder said.
But that doesn’t mean a thing if you are in a market with low inventory, want to buy a home and can’t find what you
want.
“I get emails everyday with the new listings that come on. Realtors send similar lists. I check open houses every
weekend,” Peter Wilson said. “I know everything that comes on the market.”
He is concerned there will be a lull in new listings during the summer, but is willing to keep on searching for as
long as it takes. After all, he plans on being in his next home for some time.
“I’m hoping that one comes along sooner rather than later,” he said.
Write to Amy Hoak at AskNewswires@dowjones.com
(END) Dow Jones Newswires 06-25-120822ET Copyright (c) 2012 Dow Jones Company, Inc.
Open all references in tabs: [1 – 7]