January Housing Inventory Declines 24 Percent

The Mortgage Corner

The surest sign that property values will increase this year is the large decline in homes for sale. This is in part due to increasing sales, with existing-home sales up some 6 percent, year-over-year. But there is also a sharp decline in the so-called shadow inventory of homes in mortgage default, as well as outright foreclosures.

According to the deptofnumbers.com for (54 metro areas), overall inventory is down 23.9 percent year-over-year in early January, and probably at the lowest level since the early '00s. This Calculated Risk graph shows the NAR estimate of existing home inventory through November (left axis) and the HousingTracker data for the 54 metro areas through early January.

Graph: Calculated Risk

According to the NAR, national inventory declined to 2.03 million in November down from 2.11 million in October. This is the lowest level of inventory since December 2001. Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.

Gary Wood’s December Santa Barbara MLS data also show signs of less inventory for sale. In December 2012 escrows remained strong with about 90 down from 98 in November and the median list price on those escrows went up from $811,850 the previous month to over $900,000, so we may be seeing prices rising substantially this year. But closing periods are falling. For instance, the $550,000 to $599,999 price average sale period averaged just 9 days, while 6 other price ranges closed within 20-30 days.

Continued price improvement is dependent on interest rates maintaining their record lows through 2013, of course. But Fed Chairman Bernanke has promised to maintain such low rates until the unemployment rate has declined to 6.5 percent, which won’t probably happen until 2015. So that will also stimulate the building of more new housing. Some of it will be rentals, as vacancy rates are tumbling. It is also depending on more new households forming. And economists are predicting that household formation could almost double in coming years from its low during the recent recession.

Harlan Green © 2012

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