Shrinking
supply of homes for sale has upended market dynamics
The stock of homes listed for
purchase has fallen significantly from last summer, in turn raising prices and
homeowners' equity stakes and reducing total sales.
By Kenneth R. Harney
July 29, 2012
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 has fallen significantly in most areas compared with a year
earlier, sometimes dramatically so. And that is having important side effects
by 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 has dropped by sometimes
extraordinary amounts — 50% or more below year-earlier levels in several areas
of California, according to industry studies.
In Los Angeles, available inventory is 49% lower than it
was last summer, San Diego by 53%, reports Redfin, a national online realty
brokerage. In Seattle, listings are off 41%. In Washington and its nearby
suburbs, listings are down 28%.
According to the National Assn. of Realtors, the total
number of houses listed for sale across the country in June was 24% lower than
a year earlier. The dearth of listings is often more intense in the lower- to
mid-price ranges, less so in the upper brackets.
Just south of San Francisco, Redfin agent Brad Le says
inventory in Silicon Valley is down so drastically — and demand so strong —
that the bidding wars are spinning off the charts.
"We're not just talking about 10 or 15"
offers, he says, "but sometimes 40 and 50."
Some buyers are inserting escalation clauses into their
contracts to keep pace with counter-bids, and waiving financing contingencies,
inspections and even agreeing to increase their down payments to counter any
differences between the accepted sale price and the appraised value. One
modest, 1,700-square-foot house recently was listed at $879,000. It drew more
than 50 competing offers and sold to an all-cash buyer for $1,050,000 in less
than a month.
Silicon Valley is in its own special economic niche, but
inventories have declined nationwide. Online real estate and mortgage data firm
Zillow reports that some of the steepest declines are in places 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% and 46% of owners,
respectively, have negative equity.
Both cities have seen significant drops in inventory,
and both are experiencing strong appreciation in home prices. Phoenix prices
are up 14.7% for the year and Miami by 9.7%, according to data from research firm
CoreLogic.
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, especially in a slowly improving price environment. So
they sit tight rather than list. Banks with large stocks of pre-foreclosure 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, especially in segments of local markets where demand is strongest.
Longer term, price increases will gradually rewind the cycle, increasing
owners' equities and convincing more of them to list and 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 any
time 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.
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