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Inventory Falls to Lowest Point in Three Years: February 2013 State of the Housing Market

The county's housing inventory has fallen to its lowest point in three years. We have six reasons why the housing bubble made it nearly impossible for first-time home buyers find their dream house.

David Cross

Content Editor

237 articles, 24 comments




The big story of 2012 was the housing market’s severe lack of inventory. We were hoping with the New Year, the country’s housing stock would increase. Unfortunately, if January is any indicator, 2013 is looking much like 2012.

The total amount of inventory in January dropped from December. This goes against the housing market’s seasonal trends. Across the 34 cities we track, inventory decreased to its lowest point in three years. Currently, there are about 89,000 homes listed on the MLS across the 34 geographically diverse cities we track. This is a decrease of about 47 percent from the peak in September 2010, and 19 percent from January 2012.

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At the same time that inventory fell, the monthly list price per square foot marginally increased from $169 in December to $173 in January. A year ago this figure was $155. Two years ago the price per square foot sat at $162. Essentially homes on the market today are more expensive than in the past two years.

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What does this mean for home buyers—especially first-time home buyers? It’s bad news. Today’s home buyers are paying for the mistakes of past homeowners.

To understand why this is, you need to understand the typical home-buying cycle, and how it’s been screwed up.

The Seven-Year Itch

The typical homeowner stays in a house for five to seven years. In a normal market, people who purchased houses between 2006 and 2008 would now be selling those houses and moving into new homes.

This cycle, however, has fallen apart, meaning that first-time home buyers have almost no homes to purchase and increased competition among the ones that are on the market.

How did the market get this way? Five to seven years ago, the housing industry was inside an unprecedented housing bubble. And then the bubble burst. Homes people purchased lost significant value, and many home buyers ended up paying more for a home than it was worth.

Fast forward to today, and we are still feeling the effect of the bubble’s collapse.

The Troubles of Being a First-Time Home Buyer

Because the five-to-seven-year-homeownership cycle is broken, first-time home buyers are having a difficult time locating property. While the reasons for this can be traced back to the housing bubble, there are six specific problems.

  1. Those who purchased homes five to seven years ago aren’t rushing to sell their property. Why? Like most sane people, homeowners want to recover some of the money they invested in their property. They are waiting for the market to improve before putting their home up for sale.
  2. Those homebuyers who can afford to sell fear not being able to purchase a new home, so they aren’t selling. (Remember standing around at the high school dance wondering who’s going to be first to ask a girl to dance?)
  3. Banks, like underwater homeowners, are keeping properties in foreclosure off the market until prices increase. Instead, lenders are favoring loan modifications and short sales.
  4. Though inventory is low, there are homes for sale. The problem is they are higher-quality homes being sold by homeowners who purchased their properties more than seven years ago. This means they are outside of most first-time home buyers’ price range.
  5. First-time home buyers will need to look hard to find a deal. Since the market crash, private equity companies have purchased large amounts of foreclosed homes, which typically sell at a 15-percent discount. First-time home buyers are now competing for normal sales.
  6. For now, investors are in love with real estate. First-time buyers who need to finance their purchase will qualify for a fixed purchase price, and it is unusual for them to have the financial strength to go beyond that price. Investors have cash (that’s why they’re called investors, remember?) and a slight price increase is OK for them if it wins the deal.


California leads the way in Top Ten Cities with Major Inventory Level Drops

The top 7 major metros with the biggest year-over-year drop in inventory are all California:

  1. Sacramento -75.11%
  2. Oakland -66.77%
  3. San Francisco -61.41%
  4. Long Beach-56.19%
  5. San Diego -49.34%
  6. Los Angeles -48.68%
  7. Fresno -47.62%
  8. Portland -43.18%
  9. Denver-39.02%
  10. Houston -35.02%

The lesson for January is that the market is stacked against most first-time home buyers, at least until someone gets on the dance floor.


The Movoto blog is a service of Movoto Real Estate. If you’re looking for a new home, keep us in mind. We have up-to-date real estate listings and local agents throughout the country. When you want to take a break from browsing homes, you can keep coming back to read awesome blog posts like this one.

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posted on: February 4, 2013
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