Choking off the Supply

strangle-17370158Today’s topic: The three most important words in the lexicon of New Normal Real Estate: Inventory, Inventory, Inventory. Actually, let’s toss another Inventory on and make it the four most important words.
 
Used to be Location, Location, Location.  Then for awhile, when the crazy game of market musical chairs came to such an abrupt end in 2007 – Timing, Timing, Timing was a better choice. (It didn’t matter how good your location was – you still got slammed if you timed it wrong.)
 
But there’s nothing dictating the good, bad and ugly disposition of our current marketplace more than the sheer lack of healthy inventory available on the mean streets of real estate. Homes ready, willing and able to be purchased.
 
A few quick local stats – thanks to our friends at Real Options Realty (go to ror.com):
 
As of the first week in October, there were 663 listings, down 7% from 822 listings one year ago. …The fewest listings for the month of October in at least 17 years. Additionally (only) 471 are active listings. 166 of the 471 active listings, or 35%, are priced over $1Million. There are just 305 active listings in the county priced under $1Million. This is the 32nd consecutive month where the number of listings is lower than the comparable month one year earlier.
 
Wow!  Does anyone think a ton of new Sellers are going to be putting their homes on the market for Thanksgiving and Christmas? To welcome all those eager buyers tromping through the middle of their holiday dinners?  Not likely.
 
Where’s all this heading as we peer into the crystal ball of 2014?
 
Are more earnest buyers out there diligently looking for modest homes on modest streets, somewhere north of $600k and south of $800k,  going to be able to find a home to call their own?
 
How many Sellers are thinking about putting their homes on the market next spring?  Is that number more or less than the number of would-be buyers who have given themselves a time out, hoping that next spring will bring more equitable conditions to buy in?
 
Will the logjam break?  Send a flood of glorious inventory washing through the marketplace? Or will the choices get even scarcer?  Will prices keep ratcheting up with each new comp? Will rising interest rates play the spoiler role? 
 
And while we are asking questions, how the hell did we go from a market where 30 – 40% of the homes for sale were distress properties (REOs and Short Sales) to a market with almost no distress properties and upwards of 30-40% of purchases being all-cash in some areas?   
 
What happened to that huge shadow inventory that was going to get dumped on the market and drop prices even lower? Did we blink our eyes and miss it? Are we sure our good friends at Chase don’t still have some toxic bank vault of old Washington Mutual homes they are holding in massive reserve?
 
It’s been an astounding turnaround.  And it’s not really clear where so many of those buyers are getting their cash from.
 
Contrary to popular opinion, it’s not all “rich investors”.  In fact almost no “rich investors” are buying $800,000 homes in places like the lower West Side or Seabright.
 
Are regular people making some semblance of a moderate living secretly being replaced by an influx of high-income, stealthy 1% Tesla telecommuters who come in the middle of the night and surreptitiously take their places, like an insidious reprise of the invasion of the body snatchers?
 
And then finally, if the inventory is so low and prices are rising, why aren’t more sellers selling in a sellers market?  What’s wrong with this picture?
 
We’ll talk more next week.

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