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Housing Inventory Falls in Winter

The number of existing homes-for-sale has fallen to 3.5 million in September. Expect another 15 percent dip by winter if past normal seasonal patterns hold. Inventory in December and January tends to be the lowest of the year, so there could be only 3 million listings by this winter. That represents a steady chipping away at the bloated inventory of 4.5 million homes-for-sale that we saw over many months in 2008. At such a declining inventory level, home values should show definitive stabilizing trends.

From a business perspective, where REALTORS® are always interested in getting that listing, the falling inventory at first glance is not  good news. However, it is good news from the market perspective, because only consistent, stabilized home prices or a modestly rising situation will push up consumer confidence about home buying. After all, it is not about listings but how many reach the closing tables.

Foreclosure sales have been running at 20 percent of all transactions this year (another 10 to 15 percent being short sales) and will likely be roughly the same next year. But even with this high number of  foreclosures, the inventory is getting absorbed and reduced because investors have been active in hunting down distressed properties.

Separately, the inventory of newly built homes generally does not follow seasonal patterns. Currently the new home inventory is running at record lows. This is unrelated to  market conditions, but instead is due to the fact that home builders have not been constructing as much. Construction loans are extremely difficult to obtain so home builders who want to build are being constrained by the lenders. The newly built inventory is a much smaller share of the market compared to the existing homes market. Still, the exceptionally low levels of new home inventory implies that buyers’ choices are being limited somewhat. At the same time, it provides much better conditions for price improvement.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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