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Signs of the Market Shifting: Should We Be Concerned About Reduced Inventory?


Bloomberg News has a report today about how changes in levels of housing inventory are starting to impact buyer behavior:

A plunge in U.S. home listings to a 12-year low is driving up prices and preventing transactions from returning to historically normal levels. Many potential sellers are holding off until values rise more, while investors are snatching up distressed properties before they reach the market. Builders, reporting their best orders in years, can’t increase production fast enough. As buyers seek to take advantage of record-low mortgage rates, the supply and demand imbalance threatens to further limit deals as the key spring selling season approaches.

I think that the concern that "OH MY GOD, THERE'S NO INVENTORY -- WHATEVER WILL WE BUY???" are overstated. Basic economic theory dictates that sellers will respond to increased buyer activity. After all, putting the data aside for a minute, agents on the ground can tell you about all the sellers who have waited out the market for the past few years. They'll start coming on the market once they see that conditions are better for a sale. And if homes are selling in two weeks, you can be sure that sellers will start jumping in. The article alludes to that, although one observer believes that sellers will wait out the market until prices come to a point that they can get above water after the price declines of the past five years.

Indeed, I was talking with Andrew Klappholz of the Journal News last week about market conditions, and he came at this issue from the other way. Specifically, he asked whether we might see a "glut" of inventory coming on the market from people who are retiring. It's a valid concern, given the demographic shifts we're going to be seeing over the next decade or so -- i.e., the coming retirement of the massive baby boom generation.

My response was that I don't see a spike of inventory coming, at least not anything that would materially "move the market," but that I do see a coming wave of properties coming onto the market from retiring baby boomers. In particular, I think there is some pent-up supply of people who were ready to retire and sell their primary residence five years ago, but then they saw what was happening in the market after the financial crisis of 2008. So they waited. And waited. And at some point, I'm pretty sure they're going to come on the market.

Locally, we definitely saw an inventory decline over 2012, as fewer properties were hitting the market at the same time that sales were going up. But January was a big listing month, and I wouldn't be surprised if we see listings at significantly higher levels than 2012 throughout the rest of the year.


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