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Will Shrinking Inventories Price Out New Buyers in California?

February 25th, 2015 1:43 PM by Cat Moe



Posted by RE-Insider on 2/09/15 • Categorized as Industry News

While many aspects of the real estate market have seen encouraging changes in recent weeks, one new development could spell disaster in the near future. Recently, the total number of homes available nationwide fell for the first time in 16 months, while many Californian markets saw significant drops from previous months. Now, there is a growing concern that the tightening inventory could accelerate price gains – a change which could ultimately force many would-be buyers out of the market.

A new report from the National Association of Realtors recently stated that the number of homes available on the market dropped in the month of December, waning by a modest 1% from the year before but marking the first year over year decline in 16 months.

Although several metro areas throughout California saw improvements year-over-year, many still saw significant drops in inventory from previous months.

Orange County for example – which is already facing a housing shortage and believed to have a deficit of 30,000 to 60,000 homes – had a significant improvement of 43.9% year-over-year but still dropped 8.5% from the month before. San Francisco’s inventory, on the other hand, declined by 15% year-over-year and 40% from the month before. San Diego saw a more modest drop, with inventory sinking by 1.7% from the year before and 16.9% from the previous month.

Bakersfield was the only metro area which saw positive gains on both a yearly and monthly basis, increasing by a whopping 52.1% and 4.1% respectively, according to data collected by Redfin.

While sellers may at potentially increasing prices, it’s likely that buyers and their agents will start to feel the pressure of a tightening inventory.

“Months’ supply is already low at 4.4 months,” said National Association of Realtors Chief Economist Lawrence Yun in an analysis of the trend. “More inventories are needed, not less. Or else, home prices could reaccelerate.”

It’s believed that a part of the drop was a result of declining foreclosure inventories, so agents and brokers who deal heavily in distressed properties should be aware that business opportunities could be shrinking as well.

Do you think the recent drop in available listings will price out new buyers? What are your thoughts?


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