Where’s The Inventory?

It may seem odd to think we are in a tight market right now, given the uncertain economic times and weak housing market nationally, where home prices have continued to decline.  But the fact is that the inventory of single family detached homes has been trending down sharply the past few months and there are fewer homes on the market right now in the Tri-Valley than there have been since 2009.  Here is a table showing December’s inventory level in Tri-Valley cities and the last time inventory was that low (December 2009 and June 2006).

No reason to panic, at least yet.  December is typically the low point for inventory and inventory often climbs rapidly as we get deeper into the year.  That was certainly the case after December 2009, when inventory rose steadily into late 2010.  Some communities (Pleasanton, Danville and Blackhawk) have fewer months of inventory now than in December 2009 but the other communities in the Tri-Valley actually have more.

If we look at the data on a quarterly basis, we see that the most recent inventory levels aren’t as tight as the late 2009/early 2010 period, and not nearly as tight as it was pre-2006.  The chart below shows the months of inventory in Pleasanton on a quarterly basis going back eight years. The rest of the Tri-Valley looks similar.

Looking beyond the Tri-Valley, San Francisco is also experiencing low inventory levels, as discussed in this SFGate.com article.  Nationally, the Wall Street Journal reported that inventory is at a four year low.

So what does all this mean?  Will the real estate market help pull the broader economy up or will continued weakness in the broader economy keep sellers (and possibly buyers) on the sideline? Yes inventory is low, but for the moment it has not really translated into higher prices for sellers overall, just faster sales.  Buyers are still mostly cautious about the market, and so even in situations where there are multiple offers, we are not seeing the wild, frenzied bidding we saw during the peak.  And no matter what you sell the property for, it still has to appraise unless the buyer is paying all cash.  So while it is good news for most sellers, it is likely more of a temporary condition that will change as more inventory comes on the market.

If you’re a buyer, you will probably have some competition if the home you are interested is priced correctly.  But it is still a great time to buy right now, with prices down and interest rates at historic low levels.  Just don’t expect to get that prime property at a big discount.

It will certainly be interesting to watch the market unfold as we enter the Spring.