Why is housing inventory so low right now? Did you know it declined again this past month? Shouldn’t there be more homes on the market? I’ve been getting asked these questions quite a bit, so I wanted to take a stab at an answer. First, let’s remember that housing inventory is a metric to help tell the story of how many houses are for sale. Let’s get refreshed on how to calculate this figure and then consider a few conversation points for clients.
Understanding how inventory is calculated is key to understanding why inventory is low in the Sacramento area right now. In the example above inventory is 1.97 months, which means in March there were 1.97 months worth of houses for sale on the market. Right now inventory is closer to 1.85 months, but I’ll get to that in a post on Thursday.
Four Talking Points about Housing Inventory:
- Normal: It is normal for inventory to become thin during this time of year because of the regular cycle of real estate. As Spring unfolds, more buyers get into contract, and this effectively reduces the percentage of active listings to sales from MLS. This is important to know because if there are less active listings compared to sales, inventory is bound to decline since it is calculated by dividing active listings by sales.
- 10% More Listings: For context, there are actually 10% more active listings right now compared with last month, yet inventory will show a decline in Sacramento County since the number of sales and pendings has been showing an increase. As real estate “Spring fever” comes into play, the growth of sales and pendings can outweigh the growth of new listings, which is why on paper inventory can show a decline despite more listings actually hitting the market.
- The Pending Factor: Pending sales are not counted when calculating housing inventory because these properties are no longer available for buyers. Remember, inventory is a metric to help tell the story of how many houses are for sale on the market rather than ones that are already spoken for (pendings). The number of pending sales in MLS has grown substantially in Sacramento County since January (which is normal), though this year the percentage of pendings to sales is a bit higher than usual. This naturally makes inventory decline since pendings are not factored into housing supply. When we look at the numbers, there are over 2600 active listings in Sacramento County right now, but there are roughly the same number of pending sales. The interesting part is despite having a high volume of pendings for the past few months, sales volume has been sluggish, which is why over time we’ll need to see more pending sales close escrow. Let’s watch these next two quarters closely to see if sales volume gains substantial momentum to make up for a slow Winter or if this sluggish trend persists.
- Bonus #4: Let me put this out there. Some home owners have an incredibly low interest rate because of how low rates were over the past two years. This has surely deterred certain owners from selling. Why? Because home owners always have to consider the price of a replacement home that will now cost more to buy since homes and loans are now more expensive. This is doubtfully driving the market, but we should nonetheless consider this as part of the reason why inventory is lower.
Question: Are you finding some home owners hesitant to list their properties? Are there enough listings for your buyers right now? Has it been easier or more challenging to to get into contract lately?