“It’s déjà vu all over again” said Yankee Manager Yogi Berra when sluggers Mickey Mantle and Roger Maris repeatedly hit back-to-back home runs in the early 1960s.
Will it be “déjà vu all over again” this year for housing prices, complete with multiple bids and depleted inventories? After home prices hit their biggest home run in nearly a decade last year, will 2014 see a repeat performance,
For investors facing the prospect of digging even harder to find deals as distress sales shrivel, another year of soaring prices is not a happy thought. (Actually, distress sales rose slightly last year according to the latest data from RealtyTrac, but it’s unlikely that trend will continue).
Hopefully there should be no cause for worry. All the “experts” forecasted that 2014 price increases will be modest at best, in the 3 to 4 percent range. The prospect of rising interest rates and replenished inventories should put a damper on the real estate craziness that occurred in places like Sacramento and Oakland last May.
Except that these same experts predicted 2013 prices would rise 2 to 3 percent but instead the year ended with double digit increases according to most measures. Oooops. They expected big hikes in interest rates to kick in and had no clue that a drought of homes for sale would power the fastest price eruption since the housing bubble was on steroids. Double oooops.
What the experts seem to forget is that folks thinking about selling their homes can read. Homeowners believed the predictions experts make. A 2 percent price increase didn’t do it for most of them last year, so they kept their homes off the market until prices moved up to double digit increases. By the time they the spring season was well underway. It takes time to get a house ready to sell. Significant volumes of new listings didn’t hit the hottest markets until June, just in time to put the lid on local price bubbles in a number of California markets.
Despite the frantic activity in 2013, the inventory numbers were eerily familiar as the new year began. On realtor.com, a huge database of listings and an excellent up-to-the-minute monitor of inventory at the local and national levels, the national total of homes for sale in December was only .95 percent above a year ago.
Fortunately, some of the hottest of the hot markets, like Sacramento and Bakersfield, have a better inventory cushion than they did last year (see below). Since national levels are so close, that only means other markets where price increases didn’t drive every available property to market last year may be line for it this year.
7 MSAs with Greatest Year-over-Year Inventory Increases
Minneapolis-St. Paul, MN-WI(MN)
Lakeland-Winter Haven, FL
“As we open the new year, the first-quarter inventory figures are especially crucial as our first barometer [of]seller confidence for the 2014 home buying season,” said Errol Samuelson, president of realtor.com®. “The market is still showing significant demand, but in order to have a strong home buying season, sellers need to put their homes on the market.”
In a recent blog post, NAR’s chief economist Lawrence Yun raised similar alarms, noting that shadow inventories of potential listings have been seriously depleted in the states where demand was greatest last year.
“Rising mortgage rates will tame the enthusiasm of some homebuyers. But the lack of choice when choosing a home will also hinder buying,” he said, noting that inventory levels are already very low and newly constructed home inventory is essentially at a 50-year low. Existing home inventory is hovering at a 13-year low.
“Naturally, fast price appreciating markets such as California and Nevada would like to have more inventory, but the shadow inventories in these states have been greatly depleted. California’s shadow has been slashed by 71 percent while Nevada cut its future distressed homes by 59 percent.
“At the other end, slow price appreciating states have no need for additional supply. Yet, states like New Jersey, New York, and Connecticut have barely dented their shadow and these distressed homes still loom over the market. These states have only reduced their shadow by around 10 percent from the peak condition,” he said.
Perhaps it’s too soon to worry. On the other hand, with the opening of the spring market just two months away in some markets, how sellers react could set the tone for the whole year.
Photo Credit: Espen Faugstad