Falling Inventory of Homes for Sale

The housing market is still not yet back to normal, but the inventory component is moving in the right direction.

Palm Coast, FL – September 8, 2011 – GoToby.com has followed the decline in the inventory of homes available for sale in Palm Coast and Flagler County. MLS listings for single-family homes have dropped to 1,034 this morning from 1,219 three months ago. The shortage of available listings is a strong indicator that rising prices are not too far away.

Lawrence Yun, Chief Economist for the National Association of Realtors® has issued a report that shows inventory declines are widespread, not just a local phenomena. Yun also believes that the declining inventory will lead to a rise in prices, even if the number of homes sold monthly remains the same. 141 Flagler County homes were sold through MLS in August. Locally, current inventory represents 7.3 months of inventory. This measure is often referred to as the "absorption rate."

NAR Research Report

By: Lawrence Yun, Chief Economist, National Association of Realtors®

The housing market is still not yet back to normal, but the inventory component is moving in the right direction.  There were 3.6 million existing homes on the market for sale, down measurably from the peak inventory of 4.6 million in the summer months of 2008.  Taking into account the normal seasonal drop in inventory during the autumn to winter months, by January/February there could be only 3 million homes for available sale.  At that point, the necessary balance would be provided for home prices to make sustained gains in most local markets because the corresponding months’ supply could well be in the 6 to 7 month range (even assuming there was no measurable pick up in home sales).

Meanwhile, a record low number of newly constructed homes are for sale.  At 164,000, this is the lowest number of new homes available in at least 40 years, when the data was first measured.  The new home sales pace remains very soft, at around 300,000 (compared to the healthier pace of 800,000 to 1 million), yet the months’ supply of new home inventory is already at 6.6 months.

Some REALTORS® are feeling the squeeze caused by fewer listings and the corresponding fewer business opportunities.  However, inventory needed to be adjusted downward to set the conditions for a healthier future housing market.  Home prices, whether measured by NAR, Case-Shiller, or the government, have shown slight increases from March to July of this year (though still down from a year ago).  The trend could improve further as inventory moves in the downward direction.