It has become acceptable to label 2012 as the year of the bottom in terms of real estate prices. As the housing market in the United States continues to recover, analysts and observers are looking at another bottom in 2013: Inventories of available homes for sale.
The economic principle of supply and demand has been dominant in the housing inventories since late 2010. Since October of 2010, the number of real estate listings in the U.S. has been reduced by 34 percent. Inventories have not stopped dwindling; the inventory reduction from September to October 2012 was 2.6 percent according to the National Association of Realtors (NAR). The demand has been felt in most markets across the nation.
A Sellers' Market in 2013
Inventories are getting slimmer due to real estate investors who have been very active scooping up bargain deals for flipping or to sell to potential landlords in sizzling rental markets like Phoenix. Many homeowners also withdrew their properties from the Multiple Listing Service (MLS) because they were disappointed with sliding property prices or because they owed too much on their mortgages.
Home builders also contributed to the dwindling inventories by drastically cutting back on their operations back in 2007, when the housing bubble was already deflating. Once property prices stopped their vertiginous descent in 2012, buyers began to quickly take advantage. This has contributed to bidding wars on some markets, a situation that has not been seen in quite a few years.
Real estate in the U.S. has been a veritable buyers' market since 2008, but widespread apathy and shy house hunters failed to stimulate the housing economy. Low inventories will turn the tide and bring about a sellers' market in many regions in 2013. Many home buyers are not satisfied with the low prices and even lower mortgage interest rates; they want new homes, and home builders are once again busy with new projects to meet this burgeoning demand.
The sellers' market will not materialize nationwide. Home sellers will clearly benefit from putting their properties back on the MLS in regional housing markets like Phoenix, where prices are up by more than 15 percent year-over-year. In California, inventory shortages can be easily alleviated with new construction in order to prevent pricing disparity.
In regional housing markets like Long Island and Chicago, where property prices have only modestly recovered, overbuilding could actually dilute the market.