In most parts of the country, summer is the most active time of year for home buyers. Buyers with school-age children, in particular, are eager to make the move before school begins anew. This summer, many buyers will be unpleasantly surprised by the number of homes for sale.
Lack of inventory is the big story in the housing industry right now. In many parts of the country, inventory has plummeted over the last 12 – 18 months. This is especially true in housing markets with a lot of investor activity, like most cities in California. But the trend is being played out elsewhere across the country as well.
“Buyer traffic is 40% above a year ago, so there is plenty of demand but insufficient inventory,” said Lawrence Yun, chief economist for the National Association of Realtors. “We’ve transitioned into a seller’s market in much of the country.”
Rapidly Shrinking Real Estate Markets
Each month, Realtor.com publishes a housing summary with real estate trends for 146 of the largest metro areas in the country. Among other things, they track inventory fluctuations from month to month, and also over the previous year. According to their most recent numbers, the total number of homes listed for sale has declined in 137 of those 146 markets. In other words, there are fewer homes for sale in 2013 than in 2012 – in almost every major housing market.
Here is a ranking of the top 10 cities for inventory reduction. The percentages show how the number of homes for sale has changed over the last year. Percentages have been rounded to the nearest one percent.
- Stockton, CA (-67%)
- Sacramento, CA (-63%)
- Orange County, CA (-58%)
- Oakland, CA (-54%)
- San Jose, CA (-51%)
- Los Angeles-Long Beach, CA (-48%)
- Ventura, CA (-42%)
- San Diego, CA (-41%)
- San Francisco, CA (-38%)
- Santa Barbara, CA (-37%)
California clearly dominates the top 10, in terms of inventory reduction. But as we progress down the list, we find significant levels of reduction in other housing markets as well. For instance:
- Seattle, WA (-40%)
- Reno, NV (-34%)
- Washington, DC (-30%)
- Denver, CO (-30%)
This is a major shift from the post-housing-collapse years of 2008 to 2010, when we had a surplus of homes available. Home buyers who haven’t been following the news may be shocked by how much the market has changed.
In the years following the real estate collapse, we saw buyers’ markets all across the country. There were plenty of homes for sale back then, but not enough buyers to absorb them. In those days, buyers could practically name their price.
Today, we are seeing the flip side of this coin in many local housing markets. An increasing number of buyers are competing for a limited number of homes. This drives prices up and creates multiple-offer scenarios and even bidding wars for desirable homes.
Why There Are Fewer Homes for Sale in 2013
What has caused this major shift in inventory? A variety of factors, really.
Investors have had a lot to do with it. Real estate investors typically start snatching up homes when they feel the market has bottomed out. Many of the California housing markets hit a price bottom a couple of years ago. That’s why inventory levels have dropped so significantly in that part of the country – investors have been very busy. While this trend is most noticeable on the West Coast, it is occurring to some degree across the United States.
Construction slowdowns have also played a role. Residential real estate construction came to a screeching halt nationwide, in the years following the housing collapse. It wasn’t much of an issue back then, because housing demand had also plummeted. But today, we have a situation where demand is rising at a much quicker pace than construction. Construction has certainly picked up since the housing bust. But it currently does not match the level of demand in most housing markets across the country.
Home-price deterioration is another factor. Millions of homeowners in the U.S. lost equity during the housing downturn. Some lost a significant amount of equity and are still underwater in their mortgages today. This makes selling difficult, if not impossible. Even some of the “above water” homeowners are reluctant to sell. In many cases, they are waiting (and hoping) for prices to rise far enough to undo the equity losses they suffered during the crisis years.
What does this mean for home buyers and sellers in 2013? First, it underscores the importance of housing research. Buyers and sellers need to research current market conditions in their local area. This will eliminate some of the unpleasant surprises mentioned earlier. Research is the key to setting a realistic asking price (if you’re a seller), and making a smart offer on a house (if you’re a buyer).
Home buyers must also be more aggressive today than in the past. They will encounter more competition for fewer properties. As a result, they must make strong offers with fewer demands of the seller.