Too Many Homes, Too Few Buyers

As touched on briefly in a previous post on valuations, one of the major factors overhanging our current real estate market is the sheer number of properties currently available for sale. This vast inventory of unsold homes blankets the nations and keeps our prospects of increasing values in the dark.

A recent news release from the National Association of Realtors notes that existing homes sales in September have fallen to their lowest levels since 9/11. The data shows that 5.04 million units changed hands in September 2007, down 19.1% from 6.23 million year-over-year. This decrease in sales of 1.2 million units, year-over-year, can lead to only one thing, increasing inventories.


This chart details the rise in inventories from January of 2001 through September of 2007. The clearly upward sloping trend has increased exponentially since the summer of 2005 and currently sits at around 4.5 million unsold units.


This represents a roughly 10.5 monthly supply of homes (see chart left), or an average marketing time of 315 days. At GMC we've been seeing more and more appraisals with the 'greater than 6 month' marketing time box checked, and trend that will surely continue. Looking at a 90 day sale price (~28% of the average time on market), one can clearly see that values will need to be reduced to accurately reflect the price expected to be received within this time frame.

Each of these charts goes to show that we're no longer living 24 months ago. The current market and housing economy are quite different than borrowers, brokers, and lenders are accustomed to seeing. We all need to realize the effects that years of surplus liquidity have had on our marketplace. As in any market that gets a little over-zealous there needs to come a correctional phase. This just happens to be the stage we're in now and, per current foreclosure predictions and other data, one that looks to continue.