- Rising mortgage rates will tame the enthusiasm of some homebuyers. But the lack of choice when choosing a home will also hinder buying.
- Inventory levels are already very low. Newly constructed home inventory is essentially at a 50-year low. Existing home inventory is hovering at a 13-year low.
- Increases from housing starts will bring more inventory to the market. But the current production of little over a million is not sufficient. Another quick ramp up of around 40 to 50 percent is needed to adequately supply the market.
- Another source of potential inventory is from homes where mortgages have not been paid or the home is already in the foreclosure process though not yet cleanly released from all the paperwork. How is this so-called shadow inventory trending?
- The table below shows the shadow inventory situation for all 50 states. It shows the current as well as peak distressed conditions. The data is also overlaid with home price trends to help gauge where shadow would be most useful. Naturally, fast price appreciating markets such as California and Nevada would like to have more inventory, but the shadows in these states have been greatly depleted. California’s shadow has been slashed by 71 percent while Nevada cut its future distressed homes by 59 percent.
- At the other end, slow price appreciating states have no need for additional supply. Yet, states like New Jersey, New York, and Connecticut have barely dented their shadow and these distressed homes still loom over the market. These states have only reduced their shadow by around 10 percent from the peak condition. Take a look at your state’s condition after the jump.
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About 92 percent of REALTOR® respondents in the August REALTORS® Confidence Index Survey expect prices to remain stable or to continue to increase in the next 12 months although at a rate of about 4 percent, significantly lower than recent experience. Tight inventory, pent-up demand, and the drop in foreclosure inventory have provided much of the lift in prices, but the increase in interest rates in recent months is raising the prospect of softer demand.
Across the states, the median expected price changes based on data from the June-August surveys are most upbeat in the Western states as well states like Florida where inventory is extremely low. See report at http://www.realtor.org/reports/realtors-confidence-index
 This is the median expected increase. A median expected price change of 4 percent means that 50 percent of respondents expect prices to increase above 4 percent while the other 50 percent expect prices to increase (or decrease) at less than 4 percent.
Inventory/supply conditions were reported to be improving, as reflected in the increase in the Seller Traffic Index to 46 (from 43 in May). The Buyer Traffic Index dipped slightly to 69 in June (from 71 in May), possibly due to the impact of rising prices and higher mortgage interest rates. REALTORS® reported that not enough inventory was coming on the market from both REOs and homeowner listings as current homeowners wait for prices to move up further. About 47 percent of REALTORS® reported having potential sellers waiting for further price appreciation. The information is based on the June REALTORS® Confidence Index (RCI) Survey.
What Does this Mean for REALTORS®?
The major problem holding back the current residential sales market expansion is a lack of inventory. This is a condition that is likely to continue for the foreseeable future, so REALTORS® may want to focus on informing potential buyers as to the limited inventories of available homes and the need to move quickly once a desired home is identified.