Depending on who you talk to right now the nation is experiencing a shortage in housing inventory. According to Lawrence Yun in the August issue of the Realtor magazine, the inventory nationwide was at 2.49 million units which was a huge drop from 4.5 million units when the inventory was at its peak in 2007. Departmentofnumbers.com, which tracks 54 metro areas in the country, reported that as of August 6th 2012 there were 829,477 single family and condo homes listed for sale. Since this time last year, the inventory of homes for sale has decreased by 22.8% and the median price has increased by 2.1%. In Chicago there were about 39,707 single family and condo homes listed for sale, a decrease of 17 % compared to a year ago.
The recent trend has caught many home buyers by surprise as they find themselves in bidding wars in a market they assumed to be a buyers’ market. According to the Realtor Magazine, the low inventory has been further exaggerated by the fact that there has been a 10% increase in demand in the last year. There are several reasons thought to have contributed to the current market conditions as was reported by the Chicago Tribune. Rock bottom interest rates have continued to ensure that home buyers can afford the loans they need to purchase homes. The large inventory from foreclosures that was expected to flood the market as borrowers entered default has been better managed by the banks, as they consider other alternatives like loan modifications and short sales instead of foreclosure. Professional investors have moved in to quickly scoop up bank-owned homes as they come on the market and are turning them into rentals. Another factor that has contributed to the decrease in supply has been the plunge in home values, which means that many home owners who bought their houses at the top of the market are experiencing negative equity resulting in a decision to hold on to their homes and wait for the market to recover.
As some real estate markets like Miami and Phoenix finally hit the bottom and the forces of supply and demand kick in, a clearer picture of what is to be expected is slowly emerging and fear is giving way to hope. Instead of the long bottom, in which prices were to remain low due to weak demand and increased foreclosures, it is expected that constrained supply together with increased demand from investors and first time homebuyers will create cycles of home value spikes that encourage home owners to sell as they are freed from negative equity. The additional supply is then expected to temper price appreciation resulting in a balanced market.
Michael Hobbs, SRA PahRoo Appraisal & Consultancy
Twitter: @PahRoo
We're Hiring: Residential Real Estate Appraiser for Chicago and for Suburbs
Comments(3)