Is The Increase In Inventory A Bullish Or Bearish Sign For Real Estate

By
Real Estate Broker/Owner with DeLuca Real Estate CaBRE#01364722

In a recent article, National Housing Inventory Crisis Reaches Inflection Pointrealtor.com reported that:

    1. New listings jumped 8% year-over-year nationally, the largest increase since 2013
    2. Total listings in the 45 largest markets are now up 6% on average over last yearInteresting to see the numbers in Monterey County since 2015.  Looking at the chart below, we actually had more inventory last year at this time than we do right now. 

This increase in housing inventory has sparked two different reactions. Some are saying this is the first sign of a potential collapse while others are saying it is a welcomed reprieve from the lack of inventory that has stalled the market recently. As Zelman & Associates reported in a recent ‘Z Report’:

“With the rate of home price appreciation starting to decelerate alongside the uptick in inventory, we expect significant debate whether this is a bullish or bearish sign.”

The chart below shows the number of homes available Vs. number of sales in Monterey County since October 2017 through Sept 2018. Again, there were more homes on the market than sales. 

 

Is this a sign the market might crash?

There are those who look at the increase in inventory as a sign that we are returning to the market we saw last decade. However, a closer look shows that we are nowhere near the levels of inventory we reached before the crash in 2008. What happened in 2008 had so many other factors that do not exist in this market. The inventory is steady. I would not say we are busting at the seams with inventory, I am not seeing everyone putting their home on the market or re-financing it to buy a cadillac like we did during the period before the crash.

A normal market would have about 6-months inventory, but the latest Existing Home Sales Report issued by the National Association of Realtors revealed that:

“Unsold inventory is at a 4.3-month supply at the current sales pace up from 4.1 months a year ago.”

A decade ago, prices began to rapidly depreciate in June 2007. At that time, we had a 9.1-month supply (more than double what it is today) and inventory kept rising until it hit a peak of 11.1 months in April of 2008.

With the current levels of buyer demand, any such increase in months supply is highly unlikely. As Danielle Hale, realtor.com’s Chief Economist explains:

 “After years of record-breaking inventory declines, September’s almost flat inventory signals a big change in the real estate market. Would-be buyers who had been waiting for a bigger selection of homes for sale may finally see more listings materialize. But don’t expect the level to jump dramatically.

Plenty of buyers in the market are scooping up homes as soon as they’re listed, which will keep national increases relatively small for the time being.”

What will be the result of the increase in inventory?

The increase in inventory will allow many families who had been unable to find a home to finally become homeowners. Again, we quote from the ‘Z Report’:

“In our view, the short-term narrative will probably be confusing, but more sustainable growth and affordability will likely be the end result.”

Bottom Line

If you are either a first-time or second-time buyer who has given up, there is hope for you. Don't be afraid of 5% interest rates, and don't listen to everything you hear on the news and at the water cooler. Talk to a real estate professional. I speak fluent real estate and I can direct you to the path that will put you in a home that has your name on the title.

Comments (2)

William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

What increase in inventory?   WE are just as short as we were 6 months ago

Oct 18, 2018 04:01 PM
Leslie DeLuca
DeLuca Real Estate - Monterey, CA
No One Knows The Monterey Peninsula Like DeLuca

William Feela,  

Real estate is LOCAL. I am sure that you will have very different answers in different areas.

Oct 18, 2018 05:39 PM