Economists' Outlook

Housing stats and analysis from NAR's research experts.

The discussion of inventory shortage has become more prevalent and more pronounced.  The data at the national level clearly shows fewer listings.  The decline in inventory has been particularly sharp in the following markets based on large broker reports from those areas: Phoenix, Las Vegas, San Jose, Cape Coral, downtown Seattle, and even the suburbs of Detroit.  Local inventory data from also confirms that most markets have a measurably lower inventory now compared to one year ago.

Though new home construction has started to recover, the number of new homes coming onto the market today is far below the historical average and not even close to satisfying the current inventory shortage.  In fact, the absorption of new homes is greater than new supply, thereby resulting in an actual fall in the number of newly constructed homes for sale.

The only potential source of relief to inventory shortage could be from distressed properties, the homes with a seriously delinquent mortgage problem or homes already in some stage of foreclosure.  But any inventory addition from this submarket will only be for the short term because the pipeline of distressed homes is thinning out as well.  At peak a couple of years ago there were 4.7 million homes with mortgages that were late by at least 3 months or already in foreclosure (according to a NAR estimate based on data from the Mortgage Bankers Association).  As of the first quarter, 3.5 million homes are in the distressed stage.  The more aggressive refinancing programs via HARP and HAMP for distressed homeowners will also further reduce the figure.  Foreclosure completions occurring with each passing day further removes more properties off the distressed list and into financially-strong hands as evidenced by exceptionally low mortgage default rates of homebuyers from 2009 onward.  Therefore, one cannot assume that some looming shadow inventory numbers are on the horizon to help relieve the housing shortage conditions of today.

Interestingly, the states with the increasingly acute housing shortages are the ones facing a rapid depletion in shadow inventory.  Arizona and California are two examples.  These states are non-judicial foreclosure states, meaning that a homeowner who does not pay his or her mortgage on time faces the immediate prospect of being forced out (California has been recently passing new laws to slow that process, however).

Meanwhile, states with continued decent numbers of inventory have a high shadow overhang.  Illinois and Connecticut are examples.  These two states require judicial proceedings before a home can be foreclosed and judges have been taking their time.

Very interesting dynamics are developing.  Areas facing housing shortages today will likely continue to face shortage conditions over the intermediate future.  Areas without a housing shortage could have excess inventory in the near future.

The one important unknown to all the inventory equations is the number of normal (non-distressed) homeowners who have been waiting and waiting to put their homes on the market.  It is not possible to quantify.  However, one would suspect that most of these non-delinquent homeowners would only list their home for sale with the intention of buying another one as a trade-up or trade-down property, so the net impact on inventory would be a wash.

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