How Inventory is the Housing Market's Latest Problem
2012 is the year the US real estate market started to turn around after hitting rock bottom. Home values and prices are going up and the market is more robust with more transactions. Things should be going well after the long, gloomy downturn but there is a hitch in the housing markets and it is the inventory.
According to the National Association of Realtors (NAR) report of pending home sales data, the contracts signed in May were 13 percent more than they were a year ago. New home sales have also gone up by 19.8 percent compared to the same time last year according to the Commerce Department.
One reason for the surge is that the months between April and July are traditionally a high selling season. Up to 40 percent of the transactions carried out the whole year are carried out during this season. Also, buyers who were waiting it out on the sidelines are now making their move. Investors are also quickly grabbing distressed properties in response to increasing demand. The problem is being compounded by the fact that construction of new homes is yet to pick up.
High demand, low supply, tight inventory
And that is where the problem lies. With constructors yet to get back into it and the backlog of distressed properties that are yet to be reflected in the market, inventory is down. It therefore appears that there are not enough homes to meet the rising demand and this is affecting home values and prices.
NAR has reported that inventory levels are tight throughout the US. This is being seen a lot in areas with the lowest price points where demand has been raised by first-time home buyers and investors. There is also a shortage of homes available for sale in unexpected areas like Florida and all of the western region with the Sun Belts states being the worst hit.
Tight inventory, higher demand, higher prices
Housing markets where inventory is tight changes the game for the buyer. Apart from rising demand and low supply leading to higher prices, getting a house to buy becomes that much harder. Indeed, the trend that is being seen today is that of bidding wars and multiple offers on property in the most sought out areas and neighborhoods.
Tight Arizona and Miami inventory
There are complaints from buyers that finding a house to buy has become difficult let alone getting a chance to bargain. It has all come down to bidding. For instance, in Maricopa and Pinal counties of Arizona, the supply of houses has dropped by up to 50 percent since May, 2011. According to W.P Carey School of Business at Arizona State University, the effect has been a 32 percent hike in home prices since last year in the area of Phoenix. Most of the houses in the region that were tagged below $250,000 are getting multiple offers within a short time with bidders going over the asking price.
It is also a seller's market in Dade, Florida. The housing markets inventory has been dropping steadily over the last 15 years here as well. There are in fact shortages in the most popular neighborhoods.
It is no different in Miami where no less than 191 transactions were closed worth $ 161 million in the month of May. Year to date sales have already exceeded sales in the same period last year by $150 million. Inventory is especially tight in the area of Magic City metro where there are 32 percent less homes available than there is demand for. Also, available property is being sold and removed from the market in 73 days which reflects a year to year decrease of 47 percent.
Limited bite in the Big Apple
There is also less to bite on in the Big Apple in terms of houses available for sale. In Manhattan for instance, inventory levels are down. The fact that the population is growing and that foreign buyers are interested in investing in the New York real estate market. The problem is compounded by the fact that new home construction is very low. According to the Real Estate Board of New York, it is in fact the lowest it has ever been since the 1960s.
Economist predict that the current housing markets situation of tight inventory will end soon. They are pegging this on the fact that the economy is still sluggish and fiscal cliff fears that will definitely bring down demand. The shadow inventory of unlisted distressed property is also anticipated.
Either way, if you are a prospective buyer, now is the time to start approaching home loan lenders. The goal should be to ready to go and buy when the inventory become bigger and before prices get any higher than they already are.