Will Huge Increase in Inventory Drive Home Prices Further Down?

First to start with a disclaimer: Even if the opinions and predictions in this article are 100% accurate – it does NOT mean you can’t buy or sell a home. It just means you have to work with a Realtor who is staying on top of the dynamics in the market place. It’s always been my feeling, in all walks of life, that most bad outcomes are the results of “flying blind”.

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We all keep waiting for the market to hit bottom and then rebound. That may not happen for a while – a long while - according to an article from Amy Hoaks of Market Watch.

Most of the theory and forecasting in this article come from a presentation that Stan Humphries, Chief Economist from Zillow.com gave to the National Association of Realtor Estate Editors (an 80 year old organization of Real Estate Journalists) in Austin Texas earlier this month.

SUPPLY AND DEMAND

The gist of the forecast is, always, about inventory. Remember the Real Estate Market runs on the very basics of Business 101 – Supply And Demand. When inventory is down, prices go up and vice versa. There is much data to support that inventory is going to continue to go up dramatically over the next 18 – 24 months.

Humphries projects than even in light of the slight up-tick in the national median home sale price – there are two large sources of inventory that likely will hit the streets soon.

SHADOW INVENTORY

The first is “shadow inventory”. These are homes that banks are currently holding but have not yet put on the active market. In addition there are a lot of homeowners who have not yet been foreclosed upon but likely will be. They are way behind on payments, or they are trying to handle a loan modification, which is still difficult for them to make payments. There doesn’t seem to be an accurate number for this but the consensus is that it’s a big one.

SIDELINED SELLERS

According to Humprhies the other large group – which he estimate to be as many as 5 million homes – are people who have been putting off selling their homes for the last couple of years as they have waited for the market. Due the plethora of “signs” that the economy is improving slowly, many of these homeowners will put their houses on the market because they really need to move, for whatever reason.

No one really knows what’s going to happen but I think staying informed is vital in order to make plans for all contingencies.

Here is the link to Hoak’s article.