An excerpt from Nick’s article in the WSJ about housing inventories:

The growing pessimism is attributed partly to rising inventory in many markets, a trend that doesn’t bode well for prices. The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metropolitan areas found inventories of unsold homes were up in 19 markets at the end of the third quarter, compared with a year ago, with especially large increases in San Diego, Los Angeles and Sacramento.

“We’ll see some additional price declines,” said David Berson, chief economist at PMI Group Inc., a mortgage-insurance company in Walnut Creek, Calif. “The gains we’ve seen can’t be sustained given the current supply situation.”

He is right about the increase in active inventory since last year.

Our active-inventory count of detached and attached listings is taken around the middle of each month.  In September, 2009 the count was 7,848, last month it was 12,565 – a whopping 60% increase.  Here is how this year compares with others:

Once potential sellers think prices are going up, they want to get in on it, and sell too. 

But these are psuedo-sellers tip-toeing in from the sidelines.  For whatever reason (their high loan balance, elevated ego, etc.), they aren’t motivated enough that they’d sell for what the last guy got – they have to try for more. 

Over-priced turkeys are everywhere, and the buyers aren’t going for them.  Thus, the active inventory has been building all year, though the trend has tapered off over the last 3 months with healthy sales combined with post-season cancellations. 

Why don’t psuedo-sellers get realistic and lower their price after a few weeks or months?  It would be normal to think that they won’t lower their price because they can’t, due to loan balance, or just working the short-sale/free rent package. 

But only 2,753, or 22% of the 12,447 active listings today are marked as short-sales. 

Yes, there are listing agents who aren’t marking their listings as short sales – but it looks like the majority are elective sellers, just happy to have a sign in the front yard from which they can hang holiday decorations?

We have seen in the past that when the inventory gets bloated, buyers tend to back off.  Sales have been holding up, but it appears like we’re heading for the Big Stalemate:

Sellers who need to sell, need to lower their inflated list-price.  To casual observers it might look like prices are going down, but consider this from SR, zillow’s CEO:

MP: I know you’re out there discussing data and stats on a regular basis, including in our Daily Real Estate Advisor. Despite the story the data tells, what positive messages do you think are important to get out there about real estate?

SR: Home values have bottomed and bounced off the bottom in some parts of the country. In San Diego, for example, they’re already 5-10% off the bottom. We don’t expect a significant price appreciation from here, but we don’t expect home values to go further south in those parts of the country. This points to the way we must look at home values—which is at the neighborhood and regional level. It’s more nuanced than what the national media typically reports. There is definitely some good news for our industry which has been underreported. For example, we’ve clearly passed through the bottom in terms of transaction volume. Homes are selling again and the dark days of two to three years ago when there were no sides taking place are behind us.

We’re off the bottom, but there has not been continually-increasing trend – we went flat at $250/sf:

The buyers have tolerated a little bump in pricing when there was little to choose from (note how the active inventory during the second half of 2009 was the lowest of the seven years), but now that so many over-priced turkeys have proven what homes aren’t worth, the buyers are happy to sit tight and wait. 

Will sellers lower their inflated list-price?  I think it is very doubtful.  There isn’t enough difference between a short sale and foreclosure, so those sellers won’t care to lower their price just to sell.  The elective sellers think they have enough resources to wait it out, and don’t mind that 38% of the listings have been on the market for more than 90 days.  There will be an occasional flurry, but mostly stagnation ahead.

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