Return of supply and demand
WASHINGTON — Though many home shoppers who assume they are still in a buyer's market find it hard to believe, one of the sobering fundamentals shaping real estate this summer is shrinking inventory: The supply of houses for sale is down significantly in most areas compared with a year ago, sometimes dramatically so. And that is having important side impacts — raising prices and homeowners' equity stakes, and reducing total sales.
In major metropolitan markets from the mid Atlantic to the West Coast, the stock of homes listed for purchase is down by sometimes extraordinary amounts — 50 percent or more below year-ago levels in several areas of California, according to industry studies. According to the National Association of Realtors, total houses listed for sale across the country in June were 24 percent lower than a year earlier. The dearth of listings is often more intense in the lower- to mid-price ranges.
Peggy James, an agent with Erick & Co. of Exit Choice Realty in Prince William County, Va., says she gets calls "all the time" from buyers asking, "Where are all the new listings? Are you agents bluffing" — holding back? But the reality is that "there just haven't been many" listings in some high-demand price categories, she says.
In Orange, Calif., Carlos Herrera, broker-owner of Casa Blanca Realtors, says "it's really strange right now. We have many buyers but few sellers," forcing purchasers to bid up prices on what's available.
South of San Francisco, Redfin agent Brad Le says inventory in Silicon Valley is down so drastically — and demand so strong — that bidding wars are spinning off the charts. A modest, 1,700-square-foot house recently was listed at $879,000. It drew more than 50 offers and sold to a cash buyer for $1,050,000 in less than a month.
In its latest survey of 146 large markets, Realtor.com found that 144 had lower supplies of listings last month than a year earlier. Online real estate and mortgage data firm Zillow reports that some of the steepest declines in inventory are in places that got hit the hardest during the bust, and where sizable percentages of owners still are underwater on their mortgages. In Phoenix and Miami, for example, 55 percent and 46 percent of owners respectively have negative equity.
Both cities have seen significant drops in inventory, and both are experiencing strong appreciation in home prices. According to data from research firm CoreLogic, Phoenix prices are up 14.7 percent for the year and Miami by 9.7 percent.
What's behind the widespread declines in listings? Analysts say negative equity plays a major role — it discourages people who might otherwise want to sell from doing so. They don't want to take a big loss, so they sit tight rather than list. Banks with large stocks of preforeclosure and foreclosed properties are doing the same, creating a so-called "shadow inventory" of houses estimated to total 1.5 million units.
Where's this all headed? Stan Humphries, chief economist for Zillow, says the likely trend is for more of the same: Constricted supplies will lead to price increases. Longer term, price increases will increase owners' equities and convince more to sell. This, in turn, should put a brake on price increases, especially under today's super-strict mortgage underwriting and appraisal practices.
Bottom line for anyone looking to list or purchase anytime soon: Though conditions vary by location and price segment, lower supplies of houses available for sale are changing market dynamics — putting sellers in stronger positions than they've been in years.
Kenneth R. Harney can be reached at [email protected]