Housing in 2010: Supply Will Grow, Demand Will Slow
Housing in 2010: Supply Will Grow, Demand Will Slow
When we talk about future pricing on any item we must look ahead and determine two things: supply and demand. It is a rather simple concept but one that often is forgotten when we talk about real estate. In a blog post last week titled Pricing a House in Today’s Real Estate Market, I touched on supply and demand. We all realize that as the Fed exits the mortgage market and the Homebuyers’ Tax Credit expires, demand for housing will probably wane.
Today I want to expound on the other component of the equation – SUPPLY. The supply of housing inventory will be made up of existing supply and the shadow inventory about to come to market.
Existing Inventory
In regard to existing inventory, in a normal market there should be approximately 5 to 6 months inventory. Any less than that will result in price appreciation. Anything more than 5 to 6 months will result in price depreciation.
Currently there are 3.6 million existing homes and 236,000 new homes for sale in America; that equates to 8.6 months and 9.2 months of supply, respectively, based on current sales rates.
But that’s only half the story according to Stan Humphries, chief economist at Zillow. In an article on Yahoo Finance he notes:
The official inventory numbers “don’t capture all the foreclosures that are out there,” or the so-called shadow inventory of homes waiting to come on the market.
