Housing Supply Trends: Why is Inventory so low?

June 30, 2009

by Scott Sambucci

3 comments

Over the past couple of weeks, Eric Landry (home builder analyst extraordinaire at Morningstar and former trader) and I have bantered in email and over an adult beverage about this year’s housing market supply trends.  Looking at the Altos-20 National Composite, housing inventory remained placid this Spring season, a trend I referenced in this weekend’s article – “The US Housing Market – On the Way Back Down?

US Housing Supply

US Housing Supply: January 2008 - June 2009

In this last night’s email exchange, Eric pointed out that several of the hardest hit market areas showed consistently lower inventory throughout the Spring, including Orlando, Sacramento, Phoenix, and even Las Vegas.  One theory is the that foreclosure moratorium kept homes off of the market, but even if that is the case, we should see some rise in inventory levels or at least a stabilization.  Instead, we’re seeing steady declines throughout the Spring:

Housing Supply Trends in Key Markets through June 2009

Housing Supply Trends in Key Markets through June 2009

When we examine the number of homes exiting the market (we call these “Listings Absorbed” in Altos-speak – a proxy for total weekly sales) each week over this time period, there’s no significant upward spikes or upward trends:

"Listings Absorbed" through June 2009

"Listings Absorbed" through June 2009

But, Eric’s theory is that the US housing market never saw the normal (“normal” defined as non-distressed) inflow of sellers – there were fewer listings entering the market this Spring and the numbers certainly back up this hypothesis.  The thought is that non-distressed sellers simply decided not to put their home on the market because prices depressed.  Unless there’s a specific motivation to put the home on the market, the would-be sellers decided just to wait out the market for another year.  (“The kids will just have to share a room for another year” or “Let’s wait another year for the move-up we’ve had our eye on…”) We’re definitely seeing a downward trend in the number of new listings hitting this market throughout 2009:

Weekly New Listings through June 2009

Weekly New Listings through June 2009

Did the blind squirrel find a nut? Maybe the analyst guy is right – the data sure seems to back the hypothesis, and I know Eric to be a pretty smart guy.  I’d sure like to hear from a few real estate agents out there to know if they’re feeling this theory play out locally.

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