Tuesday, May 25, 2010

Inventory Surge and Organic Trends

One of the most important housing trends to follow over the next few months is the developing rise of single family home inventory.

With four consecutive monthly increases, the latest being best described as a surge, sellers appear to be bringing their homes to market at a pace that not only exceeds that of last year but also to a level that is very reminiscent of the housing turning point year of 2007.

This is clearly “shadow inventory” (i.e. postponed home sales of homes held by individuals, investors and banks) now coming to market either out of stimulation from the government tax gimmick or simply as a result of the sense of a stabilization of the home markets.

Make no mistake, increasing inventory will put downward pressure on prices and result in a more strained circumstance for home sellers.

While we will have to wait to see how this season’s peak inventory shapes up, it’s safe to say that there is a substantial backlog of homes that need to come to market and with no tax gimmick artificially simulating sales, we will finally be getting back to the “organic” trends.