Carrington Real Estate Services

Advice

Fewer Homes & Firm Prices

How Do Falling Inventories Impact Today's Market?

Across the country we have more housing units and a bigger population and yet fewer homes are for sale. The result is that in some markets there's now less inventory, more demand and prices which are firm, if not rising.

According to the Census Bureau 1.6 million houses were on the market in the second quarter -- that's down from 2 million last year.

"Inventory continues to shrink and that is limiting buying opportunities," said Lawrence Yun, the chief economist with the National Association of Realtors. "This, in turn, is pushing up home prices in many markets."

Welcome to a real estate marketplace that's in transition. It can be argued that in fits and starts we're going from the foreclosure mess that began in 2007 and before to more stable markets in many areas.

The catch is that the transition is uneven and not every local market is seeing less inventory and higher prices. For specifics take a look at some of the factors impacting supply and demand.

Demand
One reason for higher prices is that demand has been pumped-up as interest levels have fallen to the lowest levels seen in generations. Homes which were unaffordable with 6 and 7 percent mortgage rates can be very affordable at 4 percent and sometimes less.

Another factor concerns pent-up demand. Purchasers who have been out of the market because the economy was too uncertain are now returning. As evidence, consider that almost 30 percent of all existing sales are now made for cash.

Supply
Real estate inventory is down in part because many foreclosed properties are not for sale. Lenders have title to such homes but are holding on until values improve. In some cases former owners have been allowed to remain as tenants under "REO to Rent" programs, converting the properties from immediate sales to rentals for perhaps the next few years.

Also contributing to the inventory shortage is the fact that loan modifications are allowing owners to refinance and remain in place. The government's HARP program accounted for 20 percent of all refinancing in May.

Lastly, there are some owners who would like to sell but can't because they're upside down -- the property is worth less than the outstanding mortgage amount so if they sold they would have to bring cash to closing. Without the cash such properties are effectively locked-up, homes that might be added to the for-sale inventory if property prices were higher or a short sale can be negotiated with the lender.

National figures are useful but they really don't tell us all that's going on. Real estate is a localized commodity so what's true across the country may not be true in a given neighborhood or community. To find out how demand stacks up near you -- to see whether sellers are getting multiple bids or buyers are getting bigger discounts -- speak with your nearest Carrington Real Sales Estate professional and ask about the latest trends.

For more information Click Here.

Share via Social Network