Where Will Tomorrow’s Buyers Find Inventory?

San Diego's Hot Housing Market

Since last January there has been a 40% increase in new buyers in the market. But with inventory at extreme lows, this has caused definite problems for the recovering market. So the question is: How did this happen and where will all the new inventory come from? 

There are three main factors that have caused the decline in available homes:

1) Shadow inventory….  is when less new homes are reaching the market then expected and as home prices slowly increase, fewer people are risk of default (which has also helped slow down the frequency of foreclosure). Also, lenders are taking more time getting homes back on the market with some saying it's the fear of driving home prices back down. 

2) A slump in construction…   Since 2006 the construction industry took a major hit with direct correlation to the housing boom and the abundance of houses on the market caused a severe decline in builder confidence that has yet to recover. Construction materials are also at a seven year high which has also negatively impacted the construction industry. 

3)  Government policy….  The Fed has kept interest rates low for a while now and mainly for the three main reasons of: to increase borrowing, spending and stock prices. This, for now, gives homeowners the chance to keep their homes and lessens the urgency to sell homes that were previously in default. This is a factor that we will still have to keep an eye on until the unemployment rate decreases because until then there is little chance of rises in rates. 

So where do we go from here? Although inventory is at an all time low of 13%, there have been steady increases in traditional home sales and foreclosure rates are down over 65% since January 2012. As summer gets closer and the market naturally warms up we can only expect to see more homeowners list their properties for sale and continue towards the traditional home sales. On another positive note regarding the construction industry, housing construction is up 60% in the last two years and trends seem to be moving back into the right direction. 

To wrap things up, I don't have a crystal ball (wish I did though!); however, with the rise in permits and home starts it is looking promising and most likely we will see a lot more of the same micro improvements that mirror our frustratingly slow economic recovery. Sellers should always look for an agent with a strong marketing plan so they can hit the ground running and efficiently sell their home to the perfect buyer. 

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