4 Explanations for Why Housing Inventory Is So Low

by Houston Agent

Housing inventory has been falling steadily in 2012, and the reasons for the decline vary.

Housing inventories have been on a roll lately, but not the kind many of us had expected – it just keeps going, and going, and going down!

In May, the most recent month we have data for, Realtor.com’s for-sale inventory was down more than 20 percent from last year, and inventory was down in all but two of the 146 markets the syndication site tracks. What could be the cause for this big decline? We’ve got three ideas:

  1. Negative Equity – This explanation is pretty common, with folks from Bigger Pockets to Zillow analyzing the correlation. The argument goes that because a quarter of U.S. households are underwater on their mortgages, they are effectively stalled from buying and selling, so many sellers who would normally be interested in unloading their properties are delayed in doing so.
  2. Patient Investors – This intriguing idea was suggested by Bill McBride on Calculated Risk. A new breed of cash investors, McBride wrote, have entered the housing market, buying up single-family homes for the cheap and renting them out. Because they are making 8 to 12 percent returns by renting out the properties, the investors have no incentive to sell the homes in the near term.
  3. Price Expectations – This idea is nothing new, but it’s still worth mentioning – there are still quite a few sellers who will not accept today’s market value for their homes, and are instead choosing to wait out the market and earn a reasonable return on their investment.
  4. Foreclosure Regulations – We couldn’t get through an inventory post without suggesting the shadow inventory, now could we? As Bigger Pockets most recently pointed out, there are about 1.5 million properties gumming up the foreclosure pipeline from the robo-signing slowdown, and though the mortgage settlement is a done deal, many lenders are waiting on new processing standards to take effect at the state level and are holding off on any fresh filings. In Florida, for instance, some 380,000 foreclosures hang in the balance.

Those are the four big ones we’ve come across, but have we missed any? And how have the declining inventories affected your business in the last couple months?

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