Finally, the Housing Inventory Shortage is Beginning to Ease

Housing inventory is creeping back up across the country, which could mean good things for investors everywhere, including fewer bidding wars, less competition, fewer missed opportunities, and better selection.

We can’t sing victory yet. Relatively speaking, inventory is still on the low end. In October, a report by the national Association of Realtors showed that it stood at 5-months’ supply, short of the 5.5 to 6-months’ supply some experts view as the equilibrium point. In addition, while still up 2.2 percent over last year, after rising steadily since May of this year inventory dropped 1.8 percent from October to November.

The recent stint of low inventory seems counter-intuitive in the face of rising home prices and skittish buyers.  After all, wouldn’t higher prices make homeowners want to unload their homes? And didn’t some experts predict just a few years ago that an extensive “shadow inventory” would soon be upon us?

According to Altos Research, there are several reasons why the expected shadow inventory surplus never happened, and why inventories fell in the first place, even as prices began to rise and buyers dried up. Once the housing bubble burst in 2008 the home construction industry imploded, with new home building dropping to its lowest level since 1959. Homeowners and banks holding underwater mortgages after the recession decided to hold on and wait things out, now that there was hope of recovering their losses. And the government created incentives and help geared toward helping people stay in their homes.

However, now it seems that folks are finally ready to sell again. Out of the top 30 metro areas, nine have accrued year-over-year inventory increases. In addition, the hardest hit areas with the lowest inventories have seen the biggest gains, including Phoenix, Orlando and Los Angeles.

Home inventory gains may be somewhat slow and uneven, but this isn’t necessarily a bad sign. The housing industry is reacting to temporary political and financial changes, but so far the trend for prices and inventory is still on the rise overall. Many people and banks still wait to make the best possible gains on their investments. And, as there are fewer foreclosures on the market, the turnover is slower in pace.

So, while this may be a somewhat challenging time for home flippers, long-term investors may soon find themselves with more options. Rising inventories may also cause price increases to slow, which may encourage buyers to ease back into the market. Whatever happens, it’s certainly an exciting and interesting time to be an investor.