Existing Home inventories have shrunk back down to 2004 levels from their peak in 2007. While the shadow inventory held by banks is still a concern, there are now nearly 10 bidders (mostly cash) for each foreclosure or short sale. Therefore, those under-priced foreclosures are being picked up very quickly by investors. You could anticipate the market to clear as quickly as the foreclosures come to market (over the next 12 to 18 months). With inventories shrinking, builders building only at an annual pace of 400,000 new homes instead of the long term average of 1,000,000 homes, with 1 to 1.2 household formations annually in the US, and with the “mortgage payment to rent payment ratio” at nearly 1, it could be time to start questioning if prices will increase at the end of next year?

Large 1 and 2 acre lots with Summer Deliveries

House Price Futures Index expect house prices will increase in coming months. Futures index figures report forward expectations of the level of the S&P/Case Shiller index as of the date indicated, estimated from prices of futures contracts reported by Radar Logic.

For those living in the Washington DC metro area, there has been an almost 5 percent increase in home prices since 2009 on average across the region, while the rest of the country continues to see price declines. The months supply of homes in most close-in counties and DC is hovering between 3.5 to 5 months. Anything below a 6 month supply is historically a Seller’s market.

The inventory trend of existing fee simple homes in Prince George’s County is declining. 

This translates to a 4.8 month inventory supply of homes. The market is gradually normalizing. Tighter inventories always lead to future price increases as demand begins to outpace supply. Historically, a balanced market is a 6 month supply of homes. Anything greater than 6 months is a Buyer’s market. Anything less, is a Seller’s market.

Nationally, the supply of for sale homes is returning now to 2005 levels. See graph from Calculated Risk. While there is still a shadow inventory of foreclosures and short sales, the trend is a diminishing supply of homes and a reduction of inventory. In addition, the supply of new homes is now less than any amount since 1963, when records began to be kept.

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