Residential real estate has gone from dismal to a sellers' market in just over a year. Once home prices stopped finally declining in early 2012, investors picked up their pace of acquisition in regional markets that where particularly affected by the housing downturn: Phoenix, Las Vegas, South Florida, and various markets in California. Inventories in those markets quickly tumbled, but that same situation is spreading to other metropolitan areas.
According to a recent CNBC report, local chapters of the National Association of Realtors (NAR) in Boston, Denver, Houston, and Seattle are also reporting inventory shortages. This comes at a time when buyers are motivated by rising home values and ultra-low mortgage interest rates. The chief economist at the NAR recently explained that some would-be sellers are staying put for this reason as well; they fear that selling their homes under the current conditions may turn them into renters due to rising prices and tight supply.
California Feels the Pinch
CNBC shed some light into the situation in California. In Burbank, a real estate agent explained that all the listings he has posted since early January have attracted at least 10 motivated buyers to place competing bids. Average listing prices are already 10 percent higher than comparable appraisals. Real estate in the San Fernando Valley, which is home to the affluent suburbs of Burbank, has been decimated from a seasonal 9,000 to 1,400 in 2013.
The low inventory is already showing some characteristics of a housing bubble, such as real estate agents advising California sellers to pull their homes from the market until desperate buyers begin knocking on random doors looking for deals. The shadow inventory that represents potential homes slated to arrive in the market due to pending foreclosures is moving slower than ever due to the National Mortgage Foreclosure Settlement Agreement of 2012. Mortgage lenders, servicers and investors are trying to speed up foreclosures, but they are limited by the provision of the settlement.
Booming Regional Economies Desperate for Housing
In metropolitan housing markets such as Houston, where employment is picking up and the local economy is enjoying the fruits of recovery, real estate analysts estimate that the inventory is short by about 4,000 units. Although new construction is expected to increase by 17 percent in 2013, that may not be enough to satisfy housing demand. Some would-be buyers are opting for rentals, which are also in high demand and commanding greater prices.
In Houston, some sellers are not motivated due to uncertainty. A local real estate agent explained that some of his clients worry that selling their home requires a subsequent purchase, which could end up losing value just like it happened from about 2007 until early 2012.