Thursday, March 05, 2015

The Inventory Shortage Gets Worse [Analyze This]

by Osman Parvez

Time for a quick inventory analysis update. Let's look at the charts. 



The graph above shows House Einstein's inventory tracking for attached and detached dwellings in the city of Boulder. Inventory has been rising since mid January.  

Now let's look at the bad news. 



This chart shows the breakdown between available and under contract houses. Beginning in early February, the number of "tied up" houses spiked upwards.   




The inventory shortage is worse for condos and town homes. Under contract properties (including pending listings) are 41% higher than available homes.   

From The Front Line

We've been writing offers and negotiating deals for our buyers and sellers at a furious pace. Here's what we're seeing on the ground since the beginning of the year: 

1. Inventory and thus selection is increasing, but buyer competition is increasing faster. 

2. Desirable properties are drawing multiple offers, well beyond what appraisals will support. Cash buyers have an advantage in this market. Some of that advantage can be mitigated by drafting intelligent additional provisions into the contract.  

3.  Leftover inventory is largely comprised of grossly overpriced listings or properties with obvious and difficult to fix problems such as structural defects, busy and historically weak locations, and bad floor plans. Your Realtor should be warning you away from the flotsam of the market. If not, get a better Realtor

4. The high-end is treacherous for buyers and sellers. Sellers want to maximize price but comps are few and trailing. Pricing is tricky. If a seller grossly overprices and the listing sits for weeks (or months) without an offer, buyers conclude something is wrong with the property. If the property goes under contract and then returns to market, it's worse. A bad listing history can cost high-end sellers hundreds of thousands of dollars as well as additional carrying costs. This is leading some Realtors to utilize a pre-MLS, private marketing period to test high-end pricing before opening the property to the public. To have access to these listings, buyers need to have a relationship with Realtors who maintain good relationships with their colleagues, increasing the importance of reputation and trust.   Buyers should also be very cautious about overpaying for a property during the private marketing period. Again, choose your adviser carefully.    

When I worked in the securities industry, our regulatory body (the SEC) was deeply concerned with transparent and orderly markets. That's the not the case with real estate. There is no Reg FD and information flows are anything but orderly. Here at House Einstein, we deeply analyze market conditions because it helps us better advise our buyers and sellers.   

Note: We've been writing and analyzing the the inventory shortage since 2012. It's not new, it's just getting worse. When improvement occurs, we expect it will likewise be a gradual process which occurs over several years. 



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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

Image: Jon Ross 

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