Low Inventory

melody-sMarch 17, 2012

I am starting serious shopping for a house and am finding a surprising problem. The inventory of homes in my area is so low that it almost looks like a seller's market. Prices are still low, but good houses are going within days, and a house I was interested in had a small bidding war.

I have plenty of time and I'm looking at short sales now. My Realtor has not sent me any listings for about two weeks because there is nothing out there that fits my requirements. Is this happening in other parts of the country? Is this what the market bottom looks like?

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I'm sort of near Boston. We have a somewhat similar situation, many (most) of the homes on the market that linger more than a couple weeks or a month before going under agreement are ones with significant (and difficult to overcome) flaws. Houses on very busy roads, with bad layouts, or unusually small yards are not selling. But a decent house in a good (or even average) location will sell quickly if it is priced well.

Trouble is, most people who don't HAVE to sell in this market are not selling. So the inventory is low and mostly the houses that are lingering. We are seeing more come on the market now, though. I've been stalking the market for several months because we were debating renovation versus moving. We decided to renovate because we couldn't find anything we liked as much as we like our planned renovations on this lot. And that was even if we added huge money to the budget.

I sympathize with you, it is frustrating to have so few choices.

    Bookmark   March 17, 2012 at 5:04PM
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We've had the same problem. Inventory is normally lower in the winter and people who don't have to sell aren't. We are looking for a house now, but planning to sell our current house at the end of the year ourselves! Also, i've read that the banks have been sitting on their foreclosure backlog because of the big multi-state lawsuit that was just settled. There is supposed to be a bunch of foreclosures coming in the near future. We've also noticed that people are putting houses on the market for the price they paid at the top of the bubble. Needless to say, these aren't selling....

    Bookmark   March 17, 2012 at 5:06PM
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I must say that this is NOT a seller's market. The prices have to be just right. Often, the sellers are taking a huge financial bath when they are selling. The house has to be pristine. This was not how the market was 5 years ago. If the houses are being sold by long term owners who have not kept up the house, they houses are proportionately priced low. Even after having owned the house for 10/20 years, these owners are barely recouping the rate of inflation... The owners that have put in recent expensive remodels are NOT getting their money back. The houses maybe selling, but the buyers are smart and are not over paying for the homes as they did a few years ago. The houses are selling but the sellers are not walking away with much /if any profit.

Having said that, the inventory is very low in Seattle. It is especially low for the high end market, above $1M. As soon as they hit the market, there is an offer if the house is in good condition and is priced right. We are down to around 2004 to 2006 prices. Just about every house in that price seems to have an offer the last few weeks. These were houses that could not sell for more than a year last spring. We recently looked at $1.6M new build as a Short-sale. They could not sell for 2 years! The dropped the price to a point that it is now in short sale category. This is a new phenomenon to me. We are living in a different real estate world than what I grew up with. I did not even know what a short sale was until couple years ago. To think that a $1.6M would be a short sale! There are plenty of these in the city!

I can't figure out what has happened.... It maybe that people are slightly more confident. Maybe prices are low enough that people feel that they can't pass up the 'move-up' opportunity.... Maybe banks are loaning money readily...

At the low end of the market, $300K to $450, the houses are not moving quite so fast in Seattle. They are lingering for a LONG LONG time if they are not priced right. The inventory is LOW and there are not many houses hitting the market that is in good condition at a good price. When they hit, there are multiple offers the day it hits the market. We experienced this last spring when we were trying to buy a rental house. We switched to buying a duplex which is at a higher price point and gives us better ROI without the owner-buyer competetion. Not only that, the FHA foreclosures coming onto the market (often at an amazingly good prices) require that the buyer is owner occupied, which did not fit us.

    Bookmark   March 20, 2012 at 12:11AM
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In some major markets, a full 50% of purchases are now pure cash. It looks like investors are starting to get back into the market and are buying up inventory. They are only looking for bargains though.

You aren't going to see a "normal" market until unemployment drops.

    Bookmark   March 20, 2012 at 9:01AM
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Yes, I am very much aware that it is not a seller's market. I am looking at the low end (~300k) and well within my means. The good houses in that range are, in fact, moving quite fast.

What I am surprised at is this game of wait and hurry up. I want the house that is right for me at a good price. The houses that are languishing seem to have significant problems so I am prepared to move quickly when the right one comes along.

    Bookmark   March 20, 2012 at 10:06AM
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Interestingly, earlier tonight, I was looking through the listings in our neighborhood. When I did, I could see why our house sold so quickly in this market. There weren't a lot of houses for sale, and those that were, weren't in nearly the nice condition ours is. That being said, though, there are a LOT of vacant houses around. Ones that have been forclosed or that the owners have just walked away from--but that aren't on the market yet. I have a feeling the low inventory situation is just temporary. Once all these forclosed homes hit the market, they're going to be dirt cheap (because of the dreadful condition many of them are in) and because there will be a glut.

Also, prices around here are definitely on the rise--our house sold, in just 5.5 weeks, for about $40,000-50,000 more than the same style house (and bigger ones) were going for last year.

DH and I have, naturally discussed the situation at length. Our feeling is that the upswing is partly due to the fact that it's an election year. Going by how very quickly and smoothely our sale is going? It seems NO ONE is trying to rock the boat. We actually have knob and tube, and not ONE inspector or appraiser has even mentioned it in their report. If it comes up, it's going to mean an approx. $5000 repair that we'll have to make before settlement. We're just about done the inspection process, though, so maybe, just maybe we'll squeak by on that. Our state has insured a lock-in at a low interest rate for first time buyers, banks are being generous with their money (and really, at these low rates, they need to 'sell' a lot more mortgages than they did a few years back).

    Bookmark   March 20, 2012 at 9:03PM
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If sellers can list their home, and then get then get an offer or multiple offers w/in days or weeks, then it is indeed a seller's market. RE is very local. There can be niche markets w/in the larger market that can be completly different.
If you want more options, you need to stop looking only at short sales.

    Bookmark   March 21, 2012 at 6:22AM
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I'm happy to look at anything, not just short sales. I can't however afford to buy a house at 2005 prices and then turn around and sell my house at 2012 prices. There are very few houses for sale in our target area. We made an offer on one that has been on the market for a year, but we offered a price that was on the high end per sq-ft for other sales in the exact sme neighborhood. They've owned it for 20 years. They wouldn't even counter and still haven't sold it. We are looking at another house that is a wreck. They want a price that is in line with a very grand remodel a few houses away that is 1/3 larger. We love the location and have the cash to repair the foundation and plumbing (!!!), but the elderly owners (31 years) had pulled out loan after loan on the thing and want to save their credit rating. We looked at a flipper's house. He bought it at auction in December, put in the cheesiest kitchen cabinets, no- name toilets, paint, and cheap carpet and again wants a premium price for his work. It's out of line with comps in the neighborhood and needs work, so nobody is buying.

Prices are crazy too. One neighborhood over (it's very, very fancy) a very buffed up house sold for 60% more than other houses in that size range to a foreign investor and now all the houses In every state of repair have shot up in asking price. I saw a graph that showed selling prices vs. asking prices in the area. Sales prices are flat, but asking prices are zooming upwards. Actual numbers of sales have only slightly improved. There will be another bubble eventually -- there always is -- but not yet however badly sellers want it to occur. Heck, I'd like to sell my house for 60% more than it's current value, too!

    Bookmark   March 21, 2012 at 11:37AM
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For the moment it does seem like there is a bit of upward pressure on prices because of the low inventory. However, that could very well change again when the foreclosures start hitting the market. In my area there aren't as many foreclosure so - who knows? It is simply a weird, somewhat unpredictable, market in my neck of the woods at the moment.

For now I will continue looking at short sales only because I don't want to complete the purchase until summer. As that time draws closer I will start looking at all the options. I am not opposed to getting a fixer with a rehab loan if the house has other qualities that I am looking for.

    Bookmark   March 21, 2012 at 11:38AM
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I have buyers tell me all the time that they only want to look at short sales and/or foreclosures. I tell them that a lot of the normal sellers on the market now are really just pre foreclosures in disguise. And when an offer is presented to them, they tend to bite. Don't overlook some of the best deals, just because they are not screaming "short sale" of "foreclosure" at you.
And, in order to buy something, you need to start making offers. Even if the asking prices are way out of line. Present the RE market stats along with your offers, just like you did here. Someone will bite.

    Bookmark   March 21, 2012 at 5:07PM
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This article on the inventory situation just appeared on a local news website.

Here is a link that might be useful: Sellers finally have an edge

    Bookmark   March 21, 2012 at 9:24PM
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We have made offers, but been rejected. It's weird. They won't even counter. We're making a cash offer too. Our realtor has offered to send out a letter to the neighborhood that interests us, but we haven't felt that desperate since we are retiring rather than moving for a new job. Ironically, when we returned home from walking the dogs this evening, there was a letter sitting on our doorstep from a realtor with a client who wants a house in our current neighborhood.

We've made an offer on a wreck that's in the perfect location (OK, I really want the wreck with the ocean view, but DH says no). The owner wants more money -- even though it's a short sale. He says the required repairs are in the "10s of thousands". Uh, not at today's prices. We're waiting for his rejection -- yet another one. We may have to go with the letter.

    Bookmark   March 21, 2012 at 9:40PM
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You may want to do this then, along with the letter. I do this once or twice a year and it has been sucessful. Have your agent scour the MLS for recently Expireds and Withdrawns. I go back in history two years. If any of these homes look like they fit your criteria, have the agent contact the homeowners. Most of these people are still sellers, even though they are not currently on the market. Good luck.

    Bookmark   March 22, 2012 at 7:05AM
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"We have made offers, but been rejected. It's weird."

If you are just offering on short sales, then that isn't weird. The bank has to agree to a short sale price. If you lowball a short sale, the sellers generally don't have any room to move down. They have a bottom line to hit and do not have the option of accepting a lower offer.

    Bookmark   March 22, 2012 at 8:52AM
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In my area, it is a seller's market. The average time on market is 2.2 months, which puts it into seller's market timelines. Well-priced homes are going within days for full price or more.

It just depends on what your local market looks like. It sounds like the inventory in your area doesn't support a buyer's market.

    Bookmark   March 22, 2012 at 4:59PM
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Sorry, not average time on market, but inventory is only for 2.2months worth of sales... however RE speak is for that. (I am near Seattle area, so disagree with Kaismom. Just because it isn't 2007 prices, doesn't mean the current market isn't a seller's one).

    Bookmark   March 22, 2012 at 5:04PM
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Bill Wrote:

"If you are just offering on short sales, then that isn't weird. The bank has to agree to a short sale price. If you lowball a short sale, the sellers generally don't have any room to move down. They have a bottom line to hit and do not have the option of accepting a lower offer"

A short sale contract is still negotiated with the buyer before it is passed on to the lender. And in reality, sellers should not care what the offer is on a short sale, because there is nothing in it for them anyways. Just accept the offer, and pass it onto the bank. There is no "bottom line to hit" for the sellers. Even the difference between the short sale vs. what the sellers owed is more than likely to be negotiated away from being the sellers responsibility later. So just pass the contract on to the bank and see what they say.

    Bookmark   March 22, 2012 at 5:37PM
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Yeah, the situation is weird here, too. I've been following a particular townhouse development and right now there's not much out there. Foreclosures and short sales sell almost immediately when they come on the market, and that's the price range that's moving, but it sure is making owners there overly optimistic.

All the recent sales have been in the mid 60s to mid 70s, but there are a bunch of units priced over 110K that have been languishing around forever. Some owners are creeping down a thousand or so at a time, but others are actually raising the asking prices. One that has been listed for at least five months started at 120, went down to 109, and now is back up 115. Go figure.

    Bookmark   March 23, 2012 at 4:41PM
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I've been following the market closely in our area, and also on the national level, as we are purchasing an investment property. It is has been surprising to me how quickly the market is changing as inventory shrinks, and investors are getting back into the market. Housing in our area that is priced well is moving extremely fast. There really isn't a huge amount of "shadow inventory" out there (has fallen from a year ago), and I think there is going to be upward pressure on prices. Some people are actually putting more money down to get past the low appraisals, and a high percentage of sales are all cash.

    Bookmark   March 24, 2012 at 12:23AM
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We've really only seen one house that wasn't crummy, too. It was the one whose owners were asking about 50% per sq-ft more than the comps. They've owned it for 25 years and are not in trouble, so even at 2012 prices they would make a handsome profit. They refused to counter our "insultingly low" (I.e. realistic) offer, but today their realtor contacted ours and offered a price that was lower than we would have gone to, if they had been willing to counter. By now we're in negotiation for a different house that is a short sale though. The bank likes our offer, but the owner -- who shouldn't have a say -- thinks his very run down house is worth more. Weirder and weirder. This owner is way underwater even though they've owned the house for 31 years. I've bought and sold a bunch of houses in my lifetime and have never seen anything like this. There's been one single new listing this week -- a foreclosure that didn't sell at auction. It's in the fancy neighborhood and yet it's another wreck.

    Bookmark   March 24, 2012 at 1:38AM
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