We keep hearing that inventory is growing, but what does that mean?
In the traditional way that the media reports it, a growing inventory means that there are more active listings of homes for sale. The assumption is made that this is ‘good’ and ‘getting back to normal’.
But if they would look deeper, they would realize that a growing inventory of active listings means homes aren’t selling. In almost every case, it’s because they are over-priced.
If the market hits stall speed, where buyers aren’t willing to pay whatever it takes just to buy something, then a slowdown is in order.
Here is my hypothesis why a ‘slowdown’ for the rest of 2013 would be great, and set the stage for an incredible Spring, 2014.
1. Slowdown means price discovery.
For the last 12 months, the sky has been the limit for sellers, who put any price on their home and buyers paid that or more – often waiving the appraisal contingency.
With over-priced homes not selling, we’ll have additional pricing parameters.
2. Slowdown means more competition between sellers.
In areas where a few motivated sellers might be doing the stare-down, an old fashioned price war could break out.
With prices having gone up 20% to 25% in the last year, sellers who need to sell might take a little less to get it done, and still call it a win.
3. Slowdown re-engages the buyers.
The buyers who have been turned off by the frenzy will enjoy seeing more inventory lying around – and keep the demand healthy.
4. Slowdown gets the attention of agents.
Realtors have gotten away with sloppy pricing this year, but hopefully that will change once their listings start sitting around.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
While a 4Q13 slowdown might be just the breather the market needs, there are other factors that could, and should, lead to a robust 2014 buying season:
-
More formerly-underwater sellers realize they can get out.
- More baby-boomers are getting old and need help/money.
-
More previously-foreclosed and short sellers will be eligible for financing.
- Fannie/Freddie and FHA will still be around.
- Rates should be higher which makes buyers antsy.
-
Anti-Buy-and-Bail rule is easier to overcome for move-up buyers.
The high-flying price increases over the last 12 months have been great for headlines, but we need more sales to sustain momentum. The market conditions should be ideal over the next few months to keep the train rolling!
What do you think?
Frenzy behavior – it burns hot for a short time.
NSDCC annual sales of detached homes:
1997 – 2,879
1998 – 2,981
1999 – 3,236
2000 – 3,285
2001 – 2,926
2002 – 3,717
2003 – 3,932
2004 – 3,363
2005 – 3,014
2006 – 2,626
2007 – 2,479
2008 – 2,037
2009 – 2,223
2010 – 2,461
2011 – 2,562
2012 – 3,153
2013 – 2,485 YTD and about 10% higher than last year at same time.
A frenzy gets you about two years of elevated sales.
In 1997 the IRS rule changed, allowing tax-free profits up to $500,000 for those who lived in the house 2 out of the last five years.
At the time, it was unheard of – until then, the only way you could shelter profits was to buy a more-expensive house.
Boom, a frenzy built up that had two hot years (1999 & 2000) before cooling off.
Then Mozilo started goosing the mortgage market with interest-only loans, then FICO-only qualifying, then neg-ams to build the next frenzy in 2002 & 2003.
And though everyone calls 2007 the peak, look how sales steadily cooled off after 2004.
Sales are the precursor of market conditions, and I think we have another hot year left.
I can’t see 2014 being a better time to sell the then 2013. I am listing property I own now and I’m already kicking myself for not selling it this summer as a lucky neighbor of mine did. Tons more competition and inventory has come on in the last 30 days, even the last 2 weeks. I think the market now is radically different then 3-4 months ago. I don’t see how that gets a lot better by spring/summer of 2014. Summer of 2013 was a perfect storm to sell with record low inventory. 2014 will be a very different case.