Although 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 is down significantly in most areas compared with a year ago, sometimes dramatically so. And that is having important side effects — 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 is down by sometimes extraordinary amounts — 50 percent or more below year-ago levels in several areas of California, according to industry studies.
In Washington and its nearby suburbs, listings are down by 28 percent, reports Redfin, a national online realty brokerage.
In Los Angeles, available inventory is 49 percent lower than it was last summer; in San Diego, it’s 53 percent lower. In Seattle, listings are off by 41 percent. According to the National Association of Realtors, total houses listed for sale across the country in June were 24 percent fewer 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.
Peggy James, an agent with the Erick and Company team of Exit Choice Realty in Prince William County, says she gets calls from buyers asking, “Where are all the new listings? Are you agents bluffing” — holding back? But the reality is “there just haven’t been many” listings in some high-demand price categories lately, she says.
In Orange, Calif., Carlos Herrera, broker-owner of Casa Blanca Realtors, says, “It’s really strange right now. We have many buyers but few sellers,” forcing purchasers to bid up prices on what’s available.
Just south of San Francisco, Redfin agent Brad Le says inventory in Silicon Valley is down so drastically — and demand is 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 contracts to keep pace with counter-bids, waiving financing contingencies and 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 was listed at $879,000. It drew more than 50 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 declining inventories are a nationwide reality. In its latest survey of 146 large markets, Realtor.com found that 144 had fewer listings last month than a year earlier. Online real-estate and mortgage-data firm Zillow reports some of the steepest declines in inventory are in places that got 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 percent and 46 percent of owners respectively have negative equity.
Both cities have seen significant drops in inventory, and both are experiencing strong appreciation in home prices. According to data from research firm CoreLogic, Phoenix prices are up 14.7 percent for the year and Miami’s by 9.7 percent.
What’s behind the decline in listings? Analysts say negative equity plays a major role: It discourages people who might 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. For the 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: Lower supplies of houses for sale are putting many sellers in stronger positions than they’ve been in years.
Ken Harney’s e-mail address is firstname.lastname@example.org.