Prices decline even as the supply does
If it's not one thing, it's another. Long blamed for much of the housing market's woes, massive for-sale home inventories are now dwindling across the nation,
Americans listed 2.19 million homes nationwide at the end of the September, a 20 percent drop compared to last year, the Journal reported, and the lowest level on record since the survey's creator, REALTOR.com, began tracking housing inventory data in 2007. All 146 markets in the survey posted declines in inventory year-over-year, except
Normally, shrinking for-sale home inventories indicate consumer demand for housing as buyers snatch up homes on the market. That can benefit housing markets, the Journal'sNick Timiraos reports, by reducing competition and thereby driving up prices.
But this isn't a normal housing market. While trending downward, supply in many metro areas is still sky high, and even large draw downs in inventory haven't had the desired impact on prices. Actually, they've done the reverse. As prices have plummeted, so have inventories.
"Many of the places with the biggest inventory reductions have also had some of the biggest price declines in the past year," says
Fewer houses on the markets lead to lower home prices? That logic doesn't add up. But are the buyers (or lack thereof) to blame? The sellers?
The answer is both, and it all goes back to weak consumer demand. Weak consumer demand has been an ugly and persistent symptom of the Great Recession, impacting every corner of the economy from manufacturing to retail.
Real estate hasn't been spared -- despite rock-bottom mortgage rates and record affordability, Americans just aren't buying homes at the rate necessary to sop up excess supply, which experts expect will be further inflated with another round of foreclosures in the near future.
As a result, those who can have taken their homes off the market or held off on listing, according to the Journal and Kolko. "When prices go down and inventory goes down as a response, it's because people are taking their homes off the market or deciding not to list," Kolko says.
The scary part is that sellers sitting on the sidelines could flood the market quickly if prices pick up in the market. "It's something that can change pretty quickly," Kolko says. "People can just decide to list their homes again and there are so many homes that are owned by banks or in the foreclosure process that if prices started to rise, lots of additional inventory could come to market."
A fresh deluge of properties on the market could complete the vicious cycle, putting a damper on housing prices, spurring foreclosure activity, and depressing the housing market further.
Skittish buyers have held off on making a move, too, fearing that the downward march in home prices could actually dip lower, and for the most part they've been right. Although prices have inched up the past few months
according to the latest Case-Shiller Index, home prices are still about 30 percent off of their
Considering the strong rental markets in some regions, one possibility we've explored before is encouraging real estate investors to buy up foreclosed, vacant, or distressed properties and rent them. That would clear some of the excess housing supply and allow investors to capitalize on demand for rental properties.
But, limitations to that proposed solution exist as well. Much of the distressed and vacant housing stock exists in areas where there is weak rental demand or few employment opportunities.
Notwithstanding the myriad other obstacles the housing market faces, until Americans want to buy houses, and homes people want to buy are for sale, it's unlikely any meaningful improvement on the housing front will occur.
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Real Estate - Falling Housing Market Inventory Brings Only Limited Benefits
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