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June 22nd, 2012

What’s up with home inventory?

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Fran Images--SoldAh, the classic balance of supply and demand. When demand is high and inventory is limited, prices rise. That much we know. Yet we may have forgotten about that dynamic to a certain degree since we haven’t seen too much housing demand in recent years. However, demand is back in certain markets around the country.

The NAR announced on Thursday that existing home sales were down 1.5 percent in May. While Nick Timiraos of the Wall Street Journal described the change as “ho-hum,” and said “[prices] are still at a higher level than any month in 2011,” he noted that the real story behind the monthly sales report was that “demand is up” and “supply is down.”

Inventory levels are down in many markets around the country thanks to investors and first-time buyers motivated by record-low mortgage rates and cheap home prices.

Bill Briggs, of msnbc.com, wrote that in Sacramento, “existing inventory at the end of May was 1,413 single-family homes – compared with 4,111 homes the same month in 2011, said Brian McMartin, a broker associate with Better Homes and Gardens Real Estate, Mason-McDuffie.”

In Portland, monthly home sales have risen 16 percent in the past year, while inventory has fallen by 26 percent, wrote Elliot Njus of The Oregonian.

The result of this limited supply has been a rise in home prices. The NAR reported that median home prices rose 7.9 percent on a year-over-year basis to $182,600, the highest mark since June 2010.

Buyer profile is changing

Loan officer Dan Green wrote this morning that the more “move-up” buyers that purchase homes, the more prices will rise and the market will stabilize.

“The May Existing Home Sales report showed that today’s home buyers are increasingly of the ‘move-up’ variety; buyers who have owned a home and are moving to a new one,” wrote Green.

“Move-up buyers are a key statistic because nearly all of them had to sell a prior home before purchasing a new one. One year ago, move-up buyers were frozen — unable to sell and unable to buy.”

Today, that trend seems to be reversing.

“Pent-up demand can be a powerful force,” he said, giving markets like San Francisco and Phoenix an edge.

“Move-up buyers tend to purchase ‘bigger’ homes; homes at higher price points. This helps to explain why median sales prices are rising in so many U.S. markets. Move-up buyers are buying homes at higher price points because, finally, they can.”

Lurking in the shadows

This brings us to the conclusion of this discussion–shadow inventory. Recent price gains and inventory declines can instantly reverse if one of the market’s worst fears comes true: lenders flood the market with foreclosures and bank-owned real estate that they’ve been holding on to.

But before you get too concerned over this shadowy problem, at least one broker says he’s tired of hearing the markets cry wolf in this regard.

“The buzz we keep hearing is that the banks are going to release all this (formerly distressed) inventory,” Brian McMartin, a broker associate with Better Homes and Gardens Real Estate, Mason-McDuffie, told msnbc.  ”We hear that same story every six to 12 months, or a different variation of it. It never materializes. I no longer have faith in that happening.”

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One Response to “What’s up with home inventory?”

  1. Mortgage rates bounce off record lows | Learn About Mortgage Says: June 25th, 2012 at 4:17 pm

    [...] Read: What’s up with home inventory? [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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