Total US inventories have been flat for the last quarter. While “for sale” listings are declining, distressed and FSBO inventories are still on the rise. In fact, distressed and FSBO inventory exceeds the number of for sale listings nationally for the first time. This reflects declining “for sale” inventories as well as a continued rise in distressed inventories.
As with pricing trends, the inventory situation is significantly different by market. As seen below, Florida, Nevada and Arizona still have tremendous inventories compared to national averages. California, on the other hand, is shedding “for sale” inventory and distressed and FSBO inventory.
A potential shortage of housing inventory looms ahead. Speculative construction during the housing boom resulted in significant excess inventory. When the real estate market crashed, new construction slowed dramatically, and to levels well below sustainable requirements. Current and planned new construction levels are insufficient to meet demands of net population growth and to replenish houses taken out of service (demolished). Once the excess capacity has been absorbed by population growth, it is possible that housing demand will exceed inventory before. This shortage, if it occurs, could manifest itself as early as 2010.
Unemployment is one factor in home owner defaults. Defaulting loans result in new inventories. However, unemployment has risen much faster than inventory growth. To some extent, unemployment is has not been the primary driver of the current foreclosure crisis. The foreclosure problem is related to homeowners buying more than they could afford even when they are employed, and to the prevalence of teaser-rate mortgages which proved unaffordable when rates were re-set after the grace period. However, as unemployment rises, additional foreclosures will follow.
