Why Aren’t There More Listings?

Casey Fleming

The existing home sales report was released this week, and it contained some surprising numbers. Existing home sales in March – as reported by The National Associate of Realtors (NAR) – slipped slightly below February sales, and a full 7.5% below March of 2013 sales.

Sales of existing homes were down in March 2013
Sales of existing homes were down in March 2013

At the same time, existing home inventory – listings available on the market – were up slightly in March from February. This is normal, as inventory usually bottoms out in December and January and peaks in mid-to-late summer.

Inventory is at about a 5.2 month supply nationwide
Inventory is at about a 5.2 month supp0ly nationwide

However, inventories are still very low from an historical perspective, and months of supply, a measure of supply versus demand for housing, is still very low from an historical perspective at 5.2 months on a nationwide basis. (See accompanying graph)

What gives?

The economy is certainly continuing to grow sluggishly, but it is still growing. In our area demand for housing is considered to be still substantially high, with multiple offers and bidding wars still the norm. Inventory is excruciatingly low locally, with active listings near historical lows.

So nationwide executed sales are down and in our area they are extremely low – the lowest number of home sales reported in March since 2008. I’ve worked with quite a few home buyers lately who have found themselves discouraged enough to stop shopping – for now.

The inventory of homes for sale is very low
The inventory of homes for sale is very low

Any real estate agent would agree – what we need to get this market really going is more listings. But the number of listings is growing much too slowly.

A study by Redfin shed some light on the phenomenon this week. As published by Realtormag (www.realtor.org), Redfin highlighted four categories of homes that were unlikely to be put up for sale anytime soon. They are:

About 19 percent of the nation’s home have low equity. Mortgages on these homes are greater than 80 percent of the property value, so selling the home would net the homeowner too little cash to purchase another home. If they have been able to hang on to their home for this long, they will likely keep it for a while.

About 16 percent of homes were purchased or refinanced when interest rates were at historical lows, and have interest rates below 4.25%. The vast majority of these are likely 30-year fixed loans, and the monthly cost of owning the home is very low. Selling such a home and buying another would mean a huge increase in the monthly payment for these folks. Unless they are in their “forever” home, eventually they will sell to move up, down or out, but until then these homes are not likely to be listed for sale.

About 14% of homes were purchased in the last 7 years. Although 7 years has been the historical norm for the length of time a family stays in one home that may change over the next few years, specifically for the reasons mentioned above. But even without those factors, 14% of all homes would not normally be listed anyway. (Note: I believe this double-counts homes by placing the same homes in two different categories. But what do I know. Ed.)

Finally, about 3% of the homes are owned by investors – companies or individuals – who bought multiple homes in the last 10 years and are very likely to hold them for increasing rental income and capital appreciation, as that was the investment plan from the beginning.

By Redfin’s reckoning, therefore, about 52% of the homes in the U.S. are not likely to be listed anytime in the next few years, and only the remaining 48% are likely to come onto the market in the normal economic cycles we have come to expect.


If you were waiting for more inventory before house-shopping, you either need to be very patient, or give in and get going. There’s little reason for inventory to suddenly boom, and no reason at all for demand to diminish in any meaningful way.

Home prices in the Bay Area rose dramatically last year.
Home prices in the Bay Area rose dramatically last year.

The increase in inventory, even though slight, will probably mitigate upward pressure on home prices nationally a little this year. However, Bay Area demand remains strong and our home prices are still likely to rise rapidly, although perhaps at a more moderate pace.

If you are thinking of moving down to a retirement home, waiting is not likely to hurt you. Your existing home will appreciate more rapidly than the one you will eventually buy. The only downside is that property taxes are set by purchase price, so the longer you wait the higher will be your property taxes (in all likelihood) on your retirement home.

If you are thinking of moving out to a less expensive place to live, waiting is not likely to hurt you financially. If you are ready now to retire and move to a smaller town you may not want to wait, but it isn’t likely you’ll lose ground financially.

If you are thinking of moving up you might be waiting because of any one of the reasons mentioned above. However, as prices rise the absolute dollar difference between homes on different levels rises, too. If you are not in your “forever” home, the home you really want will cost you much more down the road, and the increase will be greater than what you earn on your current home from appreciation.

These are interesting times

These are interesting times indeed in real estate, especially in the Bay Area. But if it’s time to move, don’t let the market keep you from your dreams. Find a competent real estate agent, get pre-approved, and be ready to act, and you’ll be fine.

And did you know that you can use a reverse mortgage to buy a home?

Casey Fleming, Author of The Loan Guide: How to Get the Best Possible Mortgage

Mortgage Advisor, C2 Financial Corporation

(408) 348-3442 / loanguide@outlook.com / http://loanguide.com

NMLS 344375 / BRE 00889527

Reference Sources:

Calculated Risk www.calculatedriskblog.com

DQ News www.dgnews.com

NAR www.realtor.org