It seems that whenever something happens in the housing market, a flock of articles pop up explaining why the signs are ominous and housing is destined to flounder. To me, the oddest one has to do with existing home sales this year. Prices have risen, and the inventory of homes for sale has fallen. This happy concurrence has been met with tsk-tsking that both changes will harm the recovery.
The rationale is that the shrinking inventory is causing the house price rise, making homes less affordable and undercutting the buying needed to sustain the recovery. However, these shifts are actually welcome signs – proof that housing is finally shaking off both the Great Recession and the excesses of the preceding housing bubble.
1. The 2001 recession following the Internet bubble-burst had little effect on house sales and inventory. Note that the ratio of sales to inventory held steady around 2.5.
2. Then the housing bubble took hold, driving sales up. Inventory also rose but at a slower pace, pushing the ratio up to a peak of over 3.
3. In late-2005, early-2006 the reversal in the housing market took hold. Inventory jumped both because of the natural buildup of unsold homes amid falling sales and because of speculators deciding to sell properties. These contrary moves (sales down, inventory up) produced a sharp drop in the ratio to a low of only 1.2.
4. In 2008 and 2009 the Great Recession and housing bubble-burst kept the ratio low as sales remained down and financial strains kept the listing coming.
5. Then, beginning in 2010, sales began their steady rise eating into the inventory, producing a fast rise in the sales-to-inventory ratio.
6. This year the moves have taken us back to what Realtor.com calls “equilibrium.” Note that sales, inventory and the ratio have all completed their recovery to pre-bubble levels
That last observation deserves emphasis: The existing house sales, the for-sale listings and the ratio between the two are back to the healthy levels that existed prior to the housing bubble and the subsequent Great Recession and bubble-burst. In addition, Realtor.com’s recent press release states the quality of listings is up, as shown by the “median days on the market” declining 10% since last year to 93. Moreover, the sales/inventory/price improvements are occurring virtually everywhere, even those markets previously hardest hit.
The decrease in existing for-sale housing inventory and the increase in sales and prices are neither abnormal nor ominous. Rather, the housing market is emerging fully from its bubble-and-bust period with regained health. Inventory levels, sales and prices also set the stage for continued improvement. Therefore, we can expect to see more good news coming – most likely when the 2014 spring/summer selling season emerges. It looks as though 2013 could be the pivotal year needed to produce a bright future in housing.