Shrinking Inventory Tightens Market

Westcoe Realtors, Riverside California…In what is already a very competitive market for buyers in the under $400,000 price range, the latest inventory statistics from the local Riverside MLS indicate things may get tougher before they get better.  As of June 1, 2009, the number of properties available for sale in the Riverside area totaled 1332, which is a drop of 314 from the previous month, and a drop of over 1050 since the beginning of the year.  In percentages, this is a monthly drop of almost 20% in 30 days, and 44% since January 1, 2009.

This shrinking supply of homes for sale makes it even tougher for a buyer to purchase a home since the demand for homes in the Riverside area far exceeds the available supply.  While bank repossessions still “rule the roost” as far as the type of homes for sale, Federal and State mandated moratoriums have slowly reduced the supply of homes available for sale.  As a result, for almost every “repo” that comes for sale on the market, there will be a resulting bidding war between all the buyers that are fighting over the same home.  The norm at the moment is approximately 15-20 offers on a well priced home, and there have been instances in our office the past 30 days in which at least two properties had over 60 offers.

These government moratoriums, while sounding like a good idea in the world of political sound bites, have actually done more harm than good to the market place.  For example, the State of California has begun (effective June 1, 2009) this past week a 90 day moratorium on banks from foreclosing on any property with a 1st trust deed originated between January 1, 2003-January 1, 2008.  In theory, this was to allow the owner an extra 3 months to negotiate with the bank to perhaps modify the existing loan and fore-go any need for foreclosure…but in reality, the percentage rate of modified loans is well under 5% according to various bank CEO’s we speak with regularly. 

Why such a low rate of modification?  There are two main reasons.  First, many homeowners have lost their jobs, and therefore cannot afford a loan payment no matter if it is modified or not.  Secondly, many other homeowners simply do not want to continue paying a mortgage payment on a home where the balance of the loan is so much higher than the value of the home.  As a result, there are very few loan modifications actually being made, and the net result is that the owner gets another 90 days to stay in the home without making any payments…and the bank simply has to wait out this period before finalizing the foreclosure.

The irony of all this is that the real estate consumer who actually can afford a home and create the marekt where we could gradually ease ourselves out of this foreclosure mess has far less homes to choose from…which means this whole “repo mess” will take longer to run it’s course.  At some point in the next 6 months there will be a pot-load of repossessed homes coming on the market for sale that should have been for sale now.

The good news is that our demand for this housing is so strong, this massive release of inventory will not kill our pricing…but we cannot say the same for other areas of California.  For now, all we can do is track the numbers as we have indicated at the beginning of this blog, and keep you all informed of the progress of both the repossessions on the way, and the huge amount of buyers who want them sooner rather than later.