Extreme Inventory Contraction Meets Buyer Mini-Frenzy
With foreclosures supressed and Buyers taking advantage of huge tax incentives, August continued to see inventory data turn more price-bullish. In terms of months-of-inventory, we are now very much back to the ratios that we had during the 2002-2006 boom years.
The pendelum has swung from an unheathily loose market to an unhealthy, government-induced tight market. Unhealthy because, at the low-end, there is too little for sale. And, at the high-end, there is still nowhere near enough demand to mop up supply.
Despite all cities improving over the last few months, there is still a large disconnect between lower-priced and higher-priced areas. While lower and mid-priced areas have found price support, high-end areas are still seeing massive price drops.
How long will this last?
Some are saying that this is the bottom and that the time to buy real estate is now. I’m concerned that the causes for supply reduction and demand increase are all government-induced and temporary. None of our fundamental housing problems have been solved. Read BusinessWeek Article Completely Wrong
Still, if these artificial forces continue to manipluate the market, home values under $750,000 (where we can get financing) should continue to stabilize. How lng can this last? 6 more months? A year? A decade?
One would think that eventually the foreclosure pig will make it’s way through the python and distressed inventory will begin to flood the market. Staning in the way: Banks are dragging out the foreclosure process for their own selfish reasons.
Looking at the above chart, you can see the trajectory that REO inventory was taking before moratoriums began; and you can see the impact that those moratoriums have had.
Here is data by city:
September 8, 2009
Macro Trends and Analysis