Dude, where are all of the houses?

For a long time in this current recession we have had a buyers market, which has been historically defined as having more houses on the market than there are buyers for. That generally results in house prices falling and the days on market (DOM) average creeping up. Since about the late 3rd quarter of last year a strange new trend has developed. We now have less inventory on the market than we have buyers, especially at the lower end of the market - homes priced below $200,000. Even the price bands above $200,000 have lost a lot of inventory. Yet the average DOM figure continues to climb. Take a look at the charts below.











What's happening here? In the local markets that I track - Milford, Highland, White Lake, Commerce, South Lyon and Brighton, Michigan - a few things appear to have converged to cause this unusual pattern.

1. The initial round of the first-time home buyer tax credit was very successful and took quite a bit of inventory off the market, especially at the low end. The second wave of buyers, both first-timers and current-owners, who are influenced by the extended tax-credit, was delayed by holidays and weather and are just now starting to impact the market. They are finding much less inventory to choose from. I have at least three buyers couples right now for whom I cannot find decent homes for them to look at because they need to be in the $50 - 150 price band and there's just very little there locally.

2. The big initial rounds of foreclosures that dumped so much inventory on the market in late 2008 and into 2009 are over and the banks have adjusted to the market and to new Federal programs by delaying some foreclosures and by holding some foreclosed inventory off the market.

3. The market has shifted to short sales as a better alternative to foreclosures and more and more homeowners are taking that route, which serves to delay foreclosures. Much of that inventory is hitting in the price bands above $200,000 right now. A lot of the short sale activity seems to involve people who have been laid off by the automotive industry and need to move out of state to find work.

4. The expected big second wave of ARM resets was temporarily delayed by actions taken by the state and the feds. The various moratoriums have run out, so we may see that kick in soon, if the homeowners haven't started loan modification proceeding. The new HAFA short sale guidelines will soon start impacting the market.

5. Many homeowners just let their listings expire and decided to wait out the market, some in hopes that prices would come roaring back (that ain't gonna happen) or that , at least, they wouldn't have so much competition. Hurray, you won on that bet! Now, get back in the game.

6. The expected Boomer downsizing spree has been delayed. Many Boomers find themselves "trapped" in their McMansions and are unable to seller so that they can downsize for retirement. In many cases, retirement itself has been delayed by the current economic environment. Where Boomers have been able to downsize that often contributes to the decline in low-end inventory, since they are downsizing into the same houses that a young couple might otherwise buy as a first home.

So, what we are left with locally is a market in which inventory continues to drop, Days On Market continues to stretch out and in which Median Sold Prices have stopped dropping and turn back up, as much because there are so few low end homes selling as anything, so the few higher-end houses that are selling impact the average greatly.

What does this mean for buyers and sellers?

Low-end buyers are going to have to look harder and perhaps in wider areas to find homes to look at and even mid-to high-end buyers will find much less on the market right now. For sellers, this is the moment that you've been waiting for in the market. The market is no longer saturated with excess foreclosed inventory. You'll still have to price aggressively and many will still have to take a loss on homes that have lost 30-40% of their value over the last 3 years; however, you aren't looking at lingering on the market for 12-18 months like has been the recent case.

If you're a buyer, give me a call and I'll work even harder to find you just the right house. If you've been waiting to put your house on the market, now is the time. Beat the spring rush and catch the buyers who are desperately trying to beat the April 30 deadline for the tax credit. In either case it is time to act. The real estate market is in a very unusal condition right now - it is still favorable for buyers, if you can find what you want; and it is now favorable for sellers, if you've been waiting to sell.