2 years ago, there was too much inventory. Last year and now, there is not enough. What’s going on?
Well, no one is quite sure of the reasons for the low inventory levels but many are interested in the topic – from REALTORS, to home buyers, to real estate economists to lenders – and everyone is trying to figure out WHY?
What we see is that the real estate “eco-system” is out of balance right now. There is not enough activity at the bottom (entry-level buyers) and this winds up affecting the higher levels of the real estate “food chain”.
The theory goes something like this: (1) entry-level buyers (a/k/a first-time buyers) are having trouble acquiring homes because there are not enough homes for sale – and demand is out-pacing supply; (2) With fewer home-buyers entering the market, and with home prices only slowly recovering from the housing crash, the owners of those mid-level priced homes can’t sell and “move-up” to a larger home or a different home in a different location; (3) And with fewer people at the mid-level buying bigger homes and moving up, homes at the higher-price level are not selling as quickly either. So, the whole system, at each level of the housing supply system, is stalled. The chart above shows the dramatic decrease in the number of “months of inventory” over the last 13 months – now, at only 2 months. A normal and balanced market has about 4-6 months. A seller’s market is typically 3 months or less and a buyer’s market has more than 6 months.
Home prices are up considerably this year over last year, which is helping rebuild equity for those mid-level home owners who saw their equity plummet during the housing crisis. If this continues, these home owners of today will become tomorrow’s home sellers who will then be able to comfortably list their homes for sale and break the log jam and open the system up again. Until then, inventory levels will likely remain low.
A healthy and normal housing market needs modest price increases which usually tracks a couple of points above inflation. With home values decreasing 40-50 percent in some parts of San Diego between 2006-2009, we still have a long way to go before home owners see their home values restored to pre-crisis levels, thus encouraging home owners to list and sell their homes.
Those who have to sell due to job changes, relocations, family changes, divorces, deaths, etc., are still selling homes. But those who would normally choose to sell for lifestyle or other reasons, are the ones missing in action now. These are the sellers that have to come back in order to restore inventory levels, and the housing market, to normalcy.
In case you missed it… here’s an article on low inventory levels from the Fox5 News website from a few weeks ago. There is also an accompanying short video that’s worth watching.
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