National Low Inventory: a Mixed Blessing, and Possibly a Temporary One

Buyers: Having trouble finding a lot of houses you want to go see? You are not alone. Though spring is traditionally a busier season for real estate sales, there appears to be a dearth of homes on offer when buyers confront their local MLS offerings. Indeed, nationally, figures for April of 2012 suggest that inventory is over 20% lower than it was in April of 2011.

Inventory of homes for sale is low this spring

Simple economics can help you guess the effect this smaller supply has on prices. If the number of homes for sale can’t equal the number of buyers wishing to buy, naturally, we’d expect prices to creep up. Data for April confirms this phenomenon, as the median asking price across the country has increased over 4% year-over-year. This median asking price bump also represents a month-over-month gain of over 2%, nationally.

Reasons for Optimism

Thanks to the combination of dropping unemployment, rising consumer confidence, low inventory and low interest rates, many hard-hit areas are experiencing progress, if not outright turn arounds. As reported in earlier blogs, Phoenix, Arizona has enjoyed tremendous growth: The Phoenix-area median home price rose 20 percent over the past year — 6 percent in March alone. Others include Miami, FL and Washington, D.C,, where according to the Washington Post, the active inventory of homes was in March of 2012 was down over 25% from March of 2011, driving prices in that part of the country up 8% in just one month.

In Portland, OR, homes under $250K “don’t stay on the market more than a week” if they’re traditional market sales, says Zip Realtor ® Jeremy Fershleiser. Looking for a new home himself, Jeremy found suddenly competition for decent homes in desirable neighborhoods has suddenly become fierce. Similar competition for homes has been reported by Zip Realtors in San Francisco and Boston.

All of this information would seem to indicate that if a buyer can find a great home at a great price right now, then it’s time to go for it- because otherwise someone else surely will.

Reasons to Worry

Shadow inventoryWe all have to worry about the shadow inventory we hear whispers of, however.  Banks have more foreclosed or pre-foreclosed properties than has accurately been accounted for, as these properties aren't on the MLS yet. Just last month, US News reported  “an additional 1.25 million foreclosed homes are set to flood the market following a year-long investigation into lending practices.” And this estimate is at the low end of experts weighing on this potential crisis.

A flood of distressed properties could be problematic for many reasons: they could drive the median home value down nationally, hurt home values locally, and frighten and confuse cautious buyers seeking assurance that their purchases are sound investments. Declining home values also discourage sellers from selling, which could lead to even fewer market value homes on the MLS than we currently have.

Shadow inventory, though a national problem, will affect some areas more heavily than others, just as foreclosure in general has done. Experts and industry professionals continue to study the problem, attempting to gauge its power and its effect on individual metro areas. Time in this case will probably be our best teacher.

For Now Though, an Overall Lesson:

The American real estate market has been slammed. No one could expect full recovery from so hard a hit in so short a time, and if we are expecting “full recovery” to mean home values near pre-crash 2007 levels, then we may never “recover.” The most accurate reading of the market is that it is in one of many periods of transition, of flux. After all, the economies of all first-world countries fluctuate, with periods of boom and periods of bust, and long periods of activity somewhere in-between. For now, real estate is enjoying some time in the sun, a spring revival, in keeping with the spirit of the season. And that means for both buyers and sellers, this might be the best possible time to turn dreams into reality.

Don’t Forget to Shop Locally

Because national figures are just that—national—keep in mind local realities may diverge. People don’t buy and sell homes “in America,” really; they buy and sell them on certain streets in certain neighborhoods, in towns special to them. So while America’s combine real estate data can be helpful for study and comparison, if you’re serious about buying or selling now, your best bet is to contact an experienced real estate agent. That person’s local insight will likely be far more useful to you than national figures in making an informed choice.

For Further Study