There was a 21.2% decline in listing inventory from December 2010 to December 2011.
Relying on typical housing market scenarios and reasonable logic, a decline in listing inventory nearly always meant a tightening market was developing "“ fewer houses coming on line matched against steady demand meant housing prices were more likely to stabilize or rise.
Declining inventory is the variable in the housing equation that usually makes conditions improve. During the mid-decade housing boom, falling inventory was caused by the insatiable demand by buyers "“ product could not get out to the market fastest enough. Listing inventory was simply "worked off" by (artificially) inflated demand. Listing discounts approached zero, days on market fell to record lows and prices rose rapidly.
Old scenario: Declining Listing Inventory = declining housing prices ease their decline, prices stabilize or prices rise.
However over the last year, listing inventory fell sharply in many markets yet sales were generally anemic or showing nominal increases. In the NAR numbers, non-seasonally adjusted sales were up 1.4% year over year (using NSA since inventory is also NSA) yet inventory was down 21.2%. Inventory was clearly not declining because sales were overpowering the amount of listing inventory that was available.
Then why is inventory declining?
The answer to this question was not considered in the recent prediction of a market bottom.
New scenario: Declining Listing Inventory = fall in seller confidence and the sharp decline in distressed inventory entering the market.
From NAR"¦
Total housing inventory at the end of December dropped 9.2 percent to 2.38 million existing homes available for sale, which represents a 6.2-month supply2 at the current sales pace, down from a 7.2-month supply in November.
"The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future," Yun said. "“ National Association of Realtors
We are seeing unusual declines in many markets I keep tabs on such as:
Admittedly I am cherry picking some of the cities that are posting huge declines in inventory. However the problem I find in all of these markets, is that sales are only increasing a few percentage points. Not nearly enough to explain the rapid decline.
The drops are being touted as a good sign that housing is getting back on its feet. I'm not so sure.
I think the sharp drop in many US housing markets (and this has been happening for much of 2011) has to do with three key reasons:
Declining foreclosure volume is one of the key reason inventory levels are dropping. The 1/3 decline in foreclosure volume in 2011 has resulted in a sharp drop in foreclosure inventory resulting in a sharp drop in total inventory. Distressed sales have been running at about 30% of total sales nationally for a few years but fell to about 20% in 2011. With a 2 million more homes expected to go into foreclosure over the next 2 years, a year long internal review of procedure after the 2010 "robo-signing" scandal and the 50 State AG settlement with the largest services/banks, distressed inventory is expected to rise sharply over the next several years.
Weak seller confidence is causing property not to be released into the market unless the need to sell is not optional. The 2011 home seller and buyer was bashed with the debt ceiling debate, the S&P downgrade of US debt, 400 point daily swings in the financial markets, the European debt crisis, the AG/Service settlement drama and the political stalemate on housing policy in Washington. What do people do when faced with the unknown? They sit and wait. Buyers had a lot more incentive to act with falling mortgage rates to record levels but mortgage underwriting grew tighter over the year as well.
The extension of the low interest rate policy by the Fed through the end of 2014 has obliterated any sense of urgency by sellers. I am getting a lot of feedback from real estate professionals about this as well as seeing it within my own appraisal practice. There is a lot going on the world right now and the action by the Fed suggested that they weren't particularly encouraged by the economy. To many this may seem as an incentive for sellers to get going and sell. But many of those sellers have to buy.
The drop in inventory as a phenomenon may or may not pass quickly but one thing is clear "“ weird changes in market behavior happen for a reason "“ I don't see declining inventory as a particular sign of strength in the housing market.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Thank you, Bernanke. We now have slow growth and inflation.
I often posted in 2008 that the housing problem in Florida was much worse than it appeared. The reverse appease to be the case today. If a house comes on the market in Sarasota at today’s price, down 35% or more, it will sell in 3 weeks with multiple offers. While there is a likely pent up Foreclosure inventory about to be released, there is also pent up demand from baby boomers looking to retire and wanting to own their retirement house.
I bought a foreclosure in poor condition in a nice neighborhood for $108 per square foot in 2008. Houses in my neighborhood, in good condition, are selling for as much as $180 per square foot today. At $160 per square foot, they will sell in 3 weeks. Every broker I talk to says that there is a large increase in the number of people looking at houses.
I expect there will be a significant increase in foreclosure inventory over the next year as new Florida legislation will unclog the foreclosure process, but there are enough prospective buyers to reduce that inventory once it comes on line.
Short of another credit crisis caused by contagion from Europe, I think there is plenty of evidence that real estate in the more affluent parts of Florida has bottomed and prices are rising once again.
New scenario. That stopped me. It reminds me of the “new economy” bandied about in the 90′s. It was wrong, bogus. So is this. Yeah, maybe the “scenario” plays for a short while, but: Cycles and signals don’t change. The people reading them do, and sometimes they don’t read so good.
I can only speak for the Washington market but it seems as if sellers see that prices are rising then they will hold off on listing their property until they perceive that the price has peaked. Once they see what they consider the “right price” they will list and be unflexible as to the price and terms until the listing has expired. I would say about 40% of the DC metro market are these repeat listers who are under little pressure to sell at current market rates so the actual “real inventory” is minuscule and heavily manipulated by the real estate agents. I looked at a 750K house in Arlington with a cracked foundation, no insulation, surrounded by a rusty chain link fence (which most houses have here), and saw a guy peeing in the next door back yard behind his white van. The only reason it was listed for that amount is because there are six other houses listed for about the same amount with in four blocks. This house will not sell and neither will the others listed at the same price which have been on and off the MLS for 5 years.
I see another dynamic developing. I live in an area where second homes and retirees are common. 6 years ago the economy was booming as new golf courses and housing developments were being built everywhere. Resale inventory is down right now but the number of people waiting to list ‘when prices get better’ is very high. New home development has been completely dead. My development has 5% of it homes for sale. It would be 20% if there were more buyers coming in. The dynamic here is aging retirees need to move to assisted living or continuing care or just can’t afford their homes any longer. New retirees coming in can’t sell their existing homes and can’t earn any safe income because interest rates are so low so they are not buying the second home. The add on here is failing golf course communities and upscale restaurants. So I could see a scenario where areas with decent job growth come back much sooner than the traditional retiree areas despite demographics of the baby boomer generation. Fed policies have chosen to exploit the savers and pension generation and the effect will really start to become evident as other areas recover and more retirees sink into a lower standard of living.
So "this time it’s different?" The historic data doesn’t say anything about when the housing market "strengthens." The data appears to indicate that whenever inventory declines, housing prices stabilize "“ I guess, since the old scenario that Jonathan cites actually says home prices may continue to decline, stay the same, or increase!! How can anyone be wrong with that interpretation!
I don’t think buyers today are worried about a "strengthening" housing market, I think most buyers today will gladly accept a stable market. People who have to buy will buy, investors who buy today have the resources to wait until the market "strengthens."
There’s also a fourth point I think affecting housing inventories, the "strengthening" demand for rental properties.
Time will tell whether this time it’s really different, or not.
Boy, we really dry-humped the hell out of the housing market from 2001-2007 didn’t we?
What I mean is, all of the indicators of the past are now upside down. There is no way to read the tea leaves. Even something as supposedly sound, supposedly predictable and “can’t miss” as housing is now a hit or miss proposition.
This inspires ZERO confidence in the leadership we have in place, in government and in business, for people of my generation. I don’t trust anyone in finance anymore, as you can be sure that the only thing that drives them is their love of money. While this isn’t different from 150 years ago, the way it’s done certainly is. When the equity markets were manipulated and busted (2000-2001), we moved on to housing. When that busted (~2006, 2007), we moved on to commodities. What is America’s future when the very energy we use to get us back and forth to work is being played like a 2-bit trick on the streets of Detroit?
Please keep in mind that many houses have HELOCs that are held on the books of the parent company that is servicing the mortgage while the primary mortgage is securitized and held by outside investors.
In a foreclosure sale that does not cover the cost of both the primary mortgage and the HELOC, the HELOC takes the first loss. The servicer will make money off the fees but if the HELOC writeoff is bigger than the fees, then the servicer parent company loses money overall.
My best guess is that servicers are not foreclosing on homes with significant underwater HELOCs on their own books until they can no longer extend and pretend that the HELOC has full value. This would be a fundamental financial book-keeping driver preventing foreclosure while the robosigning and bad assignments can be a procedural roadblock to foreclosures.
This is the travesty of the “settlement.” It is likely that the settlement will open the door to large writeoffs on first mortgages held by outside arms-length parties while protecting second mortgages held by the companies abusing the mortgage recording and assignment process, which would turn the precedence of mortgages on its head.
excuse me being blunt clearly out of your depth here (existing) inventory decline w no big sales pickup happens because…. new home construction net of demolition is running roughly a million/year below net houshold formation so the inventory runs off that way.. got it? you could read such eminent “economists” as Warren Buffett on this…
an excusable rookie mistake and i agree w your reasons why this is taking a long time i say this because your title conclusion is likely diametrically wrong–and should read the opposite. im not betting on housing yet–some are, but as warren points out it cant go on forever
[...] Miller asks what’s behind the recent decline in home inventory across the United States. NAR data showed a 21.2% decline in listing inventory from December 2010 to December 2011. The latest figures for January of this year showed a 15% decline in Houston area listings. [...]
Whoops they did it again
more inaccurate numbers from NAR, overstated sales of course
http://www.zerohedge.com/news/nar-continues-tradition-making-mockery-itself-revises-december-home-sales-5-05
Those that have to sell at any given moment, sell, many others who want to sell, can’t due to being under water. Another factor is obtaining a new mortgage when one can’t qualify under the new lending standards.
And how many of the foreclosed and vacant homes are habitable without major rehab? Detroit is looking to bulldoze thousands of housing units.
Sub 4% 30 year money is also giving qualified buyers a once in a lifetime opportunity to get into a well priced home in the best locations, something that has been rarer than a hen’s tooth in the past 50 years.
All of these things contribute to the lack of new inventory. The slight pick up in the employment numbers won’t filter through the economy immediately but the lack of inventory is a good sign for housing to at least stop going down in price.
I bet that after everything else failed, the “Big 5″ Banking Cartel got together and decided to try to “goose the market” by artificially restricting the supply.
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