Where is the Inventory??

WHERE IS THE INVENTORY? That’s the most common question asked in our real estate market today. Although current home buyers and investors know that local inventory is at historic lows, much of the public only remembers hearing of the surplus of inventory caused by the market meltdown that began in 2006.  For the record, local housing inventory peaked in the summer of 2007 where monthly averages were over 5,500 available properties.  Coupled with anemic sales, that market had over 15 months supply of inventory. But that was then and this is now.

According to the Fresno Multiple Listing Service (MLS), as of this May there were only 1,630 active residential listings. This is down 33% from May of 2012 (2,440 properties) and down 55% from May of 2011 (3,580 properties.)  If you see or hear of national statistics, always remember that those numbers can offer a comparison, but real estate markets are local and our numbers can vary significantly. For example, according to the National Association of Realtors (NAR), nationally the number of homes listed rose in May for the fourth straight month. In our local market, however, May brought us the second lowest monthly total of listings since December 2012.

            Historically, real estate markets ramp up their inventory and sales in the spring and summer months, but this is not what we’re experiencing.  May listings were down 5.5% from March and 8.5% from April.  Home sales in May were also down from March and April levels.  In contrast again, on a national level May sales were up 4.2% from April and our market was flat.  Locally, we’re at a point where the inventory is so low that it is starting to affect the number of sales; there just isn’t enough product on the market.

            Our monthly supply of inventory is also down to historic lows.  Of the 1,630 active listings in May, 949 went into contract (“pended”).  This gives us an “absorption rate” of 58.2% and in turn a 1.7 month supply of inventory.  Therefore, it stands that if no more homes were listed, we would be completely out of inventory in 1.7 months.  Further supporting our tight market is that the average number of days on market before a home sells has gone from 66 days 2 years ago, down to 45 days (for April and May.)  This is a drop of 32%!

            According to NAR, a “balanced” market would have about 5-6 months supply of inventory. Any more than that and we start to get downward pressure on prices and when the number falls to 4 months or lower, we begin to have noticeable price increases.  Some relief is coming from builders who are adding to the inventory with increasing in housing starts. According to the California Homebuilding Foundation, there were 782 permits pulled for residential housing starts in Fresno County for the first quarter 2013.  This compares to 483 for the first quarter of 2012 and to 239 for 2011.  Builders, however, are likely to remain cautious and these increases aren’t enough to meet market demand.

So, is this a good market for buyers or sellers?  The answer is both.  Buyers should not expect inventory to significantly change any time soon.  The second large wave of foreclosure inventory never came in 2011 nor 2012, nor does it appear to be anywhere on the horizon.  Some foreclosed properties will continue to move through the market, as well as short sales, but the overwhelming majority of transactions are currently “traditional” sales with sellers who have equity!  In fact, of the approximate 1,600 available properties today fewer than 14% are represented in the MLS as foreclosures or short sales.

            Buyers have an opportunity right now to still lock in a 30 year loan at historically low interest rates, but this window is closing.  But that’s not the only reason for buyers to get off the fence. While Economists argue about the sustainability of current price increases, most do at least agree that prices will continue to inch up.  Standard and Poors recently upgraded their 2013 forecast for the S&P/Case Shiller Home Price Index to an 11% year-over-year increase from their original 8% prediction earlier this year. Now is the best time to buy. Anyone who delays will most likely face higher prices and higher interest.

Here’s a few suggestions for buyers: be patient, if the home you’re looking for is not yet on the market, we’ll find it for you.  Use a great mobile site like londonproperties.com, save it to your phone’s home-screen, and anytime you want to know the specifics on an available property listed with any broker, go to London’s site.  Get qualified with Royal Charter Mortgage so that you strengthen the position of your offer by providing the seller up front with your financial verification.  Be prepared to act fast and make your first offer your best offer. Most Sellers today are receiving multiple offers, so you’ll have only one chance to make yours stand out above the rest. Offer a large deposit and a short escrow. Know what’s important to the seller and make your terms as favorable as possible. 

 As a seller you have what you didn’t expect a year or two ago; a market with double digit price increases.  Low inventory is helping to make this possible but this won’t last.  And if you’re a seller that will require a short sale from your lender; remember that the Mortgage Forgiveness Debt Relief Act is set to expire December 31, 2013.  The Act benefits underwater homeowners who owe more than their home is worth and who qualify to receive mortgage debt forgiveness as a result of a reduction in principal, foreclosure, short sale, or deed in lieu of foreclosure.  Sellers who sell become buyers themselves. As a Seller, the longer you wait to make a move, the more you are likely to pay in both price and interest for your next home. In other words, the sooner you sell, the better off you’ll be in the long run. 

            Whether you are a buyer or a seller now is the time to make your move!

If you’re not convinced yet, read our next article in this same section tomorrow!