You are on page 1of 2

By Bryan Sanford

US housing inventory has contracted to its lowest level since 1999

Is it a Sellers Market?

s we head into the busiest part of the year for the housing market an unusual trend is emerging. Even with prices still at record lows and sales scraping the bottom, due to the dramatic lack of inventory, it appears to be a sellers market. Across the country and most notably in urban areas, we are seeing homes going under contract in 2 weeks or less. The inventory of available homes for sale is at a decade low, creating a supply and demand imbalance in favor of the seller. The question is: when will these masses of will-be sellers leave the sidelines and enter the market? The fact is, most homeowners are holding off on listing their homes because the market is still widely considered to be at a low. As property economist for Capital Economics Ltd. in London, Paul Diggle explains, Nobody wants to sell at the bottom and everybody wants to buy at the bottom. This philosophy is exactly what is strangling the nations housing market. The theory that would-be buyers are unable to get financing due to stricter standards from the banks is irrelevant compared to the immeasurable impact of the fundamental buy at the bottom, sell at the top strategy every homeowner adheres to.
Page 4

Prices are still low, hovering around 30% below the 2006-2007 peak, but they are rising. According to the National Association of Realtors (NAR) the median price for an existing single family home was $180,800 at the end of 2012. This is an 11.5% increase from the previous year. By region, prices rose 0.7% in the Northeast, 9.1% in the South, 9.2% in the Midwest, and 20.1% in the West. San Francisco saw its prices rise over 28%. Looking at some of the areas that took the hardest hit when the housing bubble burst, cities like Phoenix and Scottsdale Arizona had prices rise nearly 34%. The S&P Case-Shiller Home Price Index (see chart next page), which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the US, shows that prices have returned to their 2003 levels. The national index posted an increase of 7.3% for 2012. For the 20-City composite index only one of the 20 metropolitan areas fell in 2012, New York (-0.5%). So yes, this means we saw a 0% appreciation rate on real estate in the past ten years, while the S&P 500 returned over 8%.

Understanding Investments Journal

Many would-be sellers are holding out until prices rise even more. Ill wait another year or two and see how much prices have improved, then think about listing, is what most homeowners seem to be thinking. Those homeowners still underwater or just at the surface with their mortgage are not willing to sell until their home values increase above and beyond what they paid. The transaction costs, including that frustratingly high 5% realtor commission, are another deterrent. Ultimately, the primary reason for their procrastination is the concern that if they sell, they may not be able to find a home to buy. It is a sellers market because the seller controls the supply. At the January 2013 sales rate for existing homes, the supply on the market was at 4.2 months, the lowest since the beginning of the bubble in 2005. The 1.74 million homes on the market is the lowest level in 14 years, as reported by the NAR. The lack of inventory has created so much demand that one home in Washington received 168 offers and ultimately sold for twice the asking price. Dozens of people in California are camping out for days and

weeks to get their name put into a lottery for newly constructed homes. Private equity companies like Blackstone Group LP (BX) are snatching up many of the distressed homes before they even hit the market. Last year Blackstone purchased 16,000 homes across the country, spending over $2.5 billion. Thats 16,000 homes wiped off the inventory list and turned into rental properties. The CEO of the nations largest homebuilder, PulteGroup Inc. (PHM) announced in a conference call with analysts that demand may even be a little overheated and so they are purposely constraining sales. PHMs stock was up 188% in 2012. We are in an extraordinary housing market. The standoff between buyer and seller is now in favor of the seller. The buyer pool is the largest, but the seller pool controls the supply. How long can the sellers hold out? If we see another 10% increase in home prices, 2013 will be the year for housing.
Bryan Sanford is Vice President & Investment Officer at Charter Trust Companys Concord office. Bryan can be reached at 603-568-7008 or email: bsanford@chartertrust.com

MoneyBasicsRadio.com

Page 5

You might also like