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3 Reasons Housing Inventory Has Hit Bottom

In January, the number of homes in Massachusetts on the market was 22,045, the lowest amount for that month since 2004 when the number of homes was 17,666. This excessively low inventory has frustrated many home buyers.  As you can see from this chart, housing inventory levels are increasing each month in 2013.

Housing Inventory levels for the month of January 2000-2013

We believe that January 2013 was the lowest point that inventory will reach for years to come.

There are 3 main reasons this low housing inventory level has finally bottomed out:

1.  Homeowners are gaining confidence because home prices are increasing and they are realizing that they could get more for their home than they could even a year ago.  This will really come to fruition this summer when most of the spring sales are final and people start hearing what their neighbors’ homes sold for.  As this happens, more sellers will list their homes for sale so they can buy a bigger home, also known as trading up.  This trend in sellers trading up will increase dramatically over the next few years.

2. Home builders have confidence again so building permits are on the rise for the 1st quarter this year, meaning more homes will be built.  This will feed the market with more new construction inventory than it has seen since 2007.  However even though building permits are on the rise there still aren’t nearly enough homes being built to feed the demand or to even come close to the amount of building that occurred during the last housing boom.  This indicates permits and building will continue to increase over the next few years.

3. More and more underwater homeowners are coming up for air! As prices increase more homes that are currently underwater will no longer be underwater. In fact, according to a report last week from Corelogic, 850,000 more homes regained positive equity during the first quarter of 2013. The report also said the national aggregate value of negative equity decreased more than $50 billion to $580 billion at the end of the first quarter from $631 billion at the end of the fourth quarter of 2012. With an increase in homes with positive equity, more homeowners who couldn’t sell their homes before can sell them now.

For example: if someone owed $400,000 on their home and in 2010 and 2011 it was worth $390,000, they could not sell unless they did a short sale or paid the difference.   Then in 2012 maybe it was worth $400,000, yet that still was not enough to sell and cover the costs of selling.  But by 2014 the home will probably be worth over $420,000 and by that time the mortgage balance will be a bit lower.  Now this home can sell!  So many of these homeowners that were unable to sell will be able to sell this year and even more likely to sell in the years to come, which will mean more homes on the market.

Too much inventory?

We are years away from having too much inventory because we are at the beginning of another market run so the demand is strong.  But inventory has been much too low.  As the factors listed above continue, inventory will rise to a healthier level which will make for a healthier market.

Source:

CoreLogic: 850,000 More Residential Properties Return to Positive Equity in First Quarter of 2013