Buyer demand for residential homes continued to outpace supply in February. The Buyer Traffic Index rose to 64 while the Seller Traffic Index essentially stayed at 39 based on information in the February REALTORS® Confidence Index (RCI) Survey.
In many areas of the country REALTORS® reported low inventory levels of homes for sale. Tight inventory conditions have been cited as leading to higher prices and reduced time on market.
Note: this is the first part of a three-part article on consumers’ views towards home buying and home ownership over a nine-year period.
NAR has produced the Market Pulse survey from 2003 through 2011. The survey was uniquely positioned to measure changes in consumers’ views towards home buying and home ownership during a period of dramatic change. The housing market reached a peak of sales in 2005 and prices in 2006 before the median home price fell nearly 30%. Since then, the market has gone through pains dealing with a backlog of foreclosed and distressed homes as well as changes to the structure of the mortgage finance system. With the housing market now inching upward from its bottom it is time to take stock of trends in the survey over the last nine years.
Based on responses to the January RCI survey, the Buyer Traffic Index rose to 63, while the Seller Traffic Index continued to register at 38 in January. In many areas of the country, REALTORS® reported low inventory levels.
Tight inventory conditions have been cited as leading to higher prices and reduced time on market. At this time seller listings are not keeping up with buyer interest.
Each month, the National Association of REALTORS® obtains up-to-date and on-the-ground incisive comments from REALTORS® who participate in the REALTORS® Confidence Index (RCI) survey. The RCI survey tracks expectations about overall market conditions, buyer/seller traffic, price, buyer profiles, and issues affecting real estate. The full report can be found here.
The selected comments reflect the general sentiment expressed by REALTORS® who participated in the October 2012 survey, conducted from October 22 through November 5, 2012. All real estate is local and conditions in specific markets may vary from the national trend.
Low Inventory/Multiple Bidding
REALTORS® reported that the inventory of homes for sale remains very tight, resulting in multi-bidding in some cases. REOs and other properties do not appear to be coming on market sufficiently to meet demand, while sellers are also waiting for prices to pick up further. Listings for properties that are in good condition are reported as receiving multiple offers. Investors are snapping up REOs, paying cash.
Here are few direct quotes:
- “I feel that the price of housing is going up due to the lack of inventory that is available, once the banks start releasing more property’s I feel that it will become a more stable market and the bidding war will end!!”
- “Inventory still down, sellers waiting for prices to go up if they can; rental market is way up, prices too.”
- “Buyers want properties in A1 condition. Investors are out there & will do the work to get property in A1 condition but only at a rock bottom price.”
- “Foreign investors focused on foreclosures make up most of our potential buyers.”
- “All entry level single family homes are multiple offer. Many homes are sold to investors prior to reaching the MLS, then within hours of listing on the MLS, it changes from active to under contract.”
The strong spring and summer housing markets helped to reduce inventories nationally and the same dynamic has played out in local markets. Somewhat surprisingly, many housing markets that were hardest hit by the housing bust are sharing in the benefits of reduced inventories.
The months’ supply of housing, supply divided by the current rate of sales depicts how many months it would take to exhaust the current supply of homes at the current rate of sales. This measure has fallen sharply in Atlanta, Chicago, Las Vegas, Phoenix, Tampa, and Palm Bay. Over the four-quarter period ending in the 2nd quarter of 2012, the months’ supply of housing had fallen by more than 20% in each of these markets.
From a historical perspective, the months’ supply in several of these markets is approaching levels last seen in the period from 2000 to 2002. The months’ supply during the 2nd quarter in the Phoenix market was at 2.3, nearly half the 3.9 months of inventory listed in the 2nd quarter of 2000. Phoenix had experienced a peak months’ supply of 9.9 in the 2nd quarter of 2007.
The boom in sales has been in both the traditional and distressed portions of these markets. According to Corelogic, the months’ supply of homes has fallen in nearly all of these markets over the 11-month period ending in June and notably in Illinois, a judicial state , which has experienced long foreclosure timelines and backed up pipelines as a result. Not surprisingly, Phoenix experienced the sharpest decline in distressed inventory of 34.8% to 4.5 months over this period. Both Riverside-San Bernardino and Sacramento experienced declines greater than 22% over this same time period.
The sharp decline in inventories raises the question of how markets will be impacted by plans at the FHFA for expanded bulk sales (each of the markets listed above is part of the FHFA’s initial REO bulk sale pilot program). With both demand and prices having risen since the pilot program was proposed and supplies down sharply, many markets appear to be experiencing a nascent or mature correction. What’s more, with prices on the rise in the face of heightened confidence of both investors and traditional home buyers, bulk sales may be difficult to execute at an efficient price relative to a free market transaction. NAR has voiced concerns to regulators about bulk sales earlier this year and in the fall of 2011.  Unfortunately, there is little known about the pricing of the sales to date, but the FHFA has suggested that it will release more information in the coming weeks. With time we’ll have clarity on the program, but it is clear that investors will continue to play an important role in buying homes for rental or remodeling to be re-sold into the market, whether through bulk or individual transactions.
 Other judicial states like Florida appear to be doing better, but results are mixed as evidenced by the divergent experiences of Tampa and Orlando, suggesting that more done on this front could help to liquidate backlogs.