Beware of National Real Estate Reports

Over the past few months, there have been more and more reports about areas in the Country that are finally starting to enjoy year over year home sales gains. This is good news, as it indicates those market areas might have found the bottom of the market and can possibly be looking at moving forward.

Of course, those same reports downplay the glut of supply of homes on the market, as well as the ever-growing supply of homes in the Shadow Inventory.

Estimating The Shadow Inventory

It is very difficult to measure the shadow inventory of homes (homes that need to be sold but are not on the market for one reason or another).

When we speak of a glut of homes on the market, we are only measuring the homes for sale in the Tallahassee Board of REALTORS® Multiple Listing Service. But what about all the other homes that we know are out there as well, such as:

  • For Sale By Owners
  • Unlisted new homes
  • Homes that previously failed to sell
  • Homes with delinquent mortgages
  • Homes in the foreclosure process
  • Homes owned by banks
  • Homes held by asset managers

In the list above, the first two exist at measurable levels in every market, so they do not really play heavily on our concern about the Shadow Inventory.

But the next ones are running at grossly atypical levels right now, and could potentially represent several years worth of supply of homes.

Beware of National Real Estate Reports

Lately, the National Association of REALTORS® and the National Association of Homebuilders® have been pushing hard in the mainstream media to report positive news of the housing market. This causes both good and bad results.

The good news helps spur people forward who were waiting to buy a home only out of the fear being created by all the doom and gloom purveyors. There are obviously great reasons to buy a home right now with some great values in the market, low-interest rates, and $8,000 coming back to the buyer from the federal government.

But there could also be a bad result if this increased buyer activity causes home builders to decide to re-enter the market.

Home Buyers Needed

We need to consume the known inventory, and we will also need to consume the unknown inventory (Shadow Inventory) before our markets need more homes built.

While this is stinking news for home builders, it is the only way they can re-enter the market without getting wiped out again when everybody realizes we have too many homes for the demand that is out there.

In Tallahassee alone, the Shadow Inventory is estimated to be between 3,000 and 5,000 homes. Normally, this would be at most a one-year supply, but at our current rate of sales, the Shadow Inventory represents nearly two years worth of supply!

Many other markets are reporting lower levels of supply, but nationally there remain more than 7 months of supply in the known inventory and ALL MARKETS have an enlarged Shadow Inventory due to the mortgage/housing market meltdown and our current state of the economy.

The Homebuyer Tax Credit has helped, but the Tallahassee housing market is still selling at about 1/2 the rate that it did during the 1990s. It is going to take time to work through all of the Shadow Inventory, not just a couple of great headlines from national organizations before our local home builders can expect to be building new homes.

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