U.S. Housing Inventory Climbs to Record Level, Home Prices Fall

Published Nov 02, 2007 | RSS Feed

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Recently released housing data indicates housing inventories across the country are swelling out of control. The excess inventory is putting downward pressure on home prices in Los Angeles, Miami, Chicago and many other U.S. cities.

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Supply of U.S. Existing Home Inventory

Source: NAR

According to housing data released October 24 by the National Association of Realtors (NAR), there are 4.4 million existing houses on the market-the most since the early 1980s. It would take an estimated 10.5 months to sell off the backlog of homes.

To put this 'record high' number in perspective, the graph above compares current inventory levels with housing inventory in January 2005, when levels were at a record low.

It is important to note that the 10.5 month figure is a national average. Some states, most notably California, Florida and Arizona, have more than 15 months of unsold inventory. Some cities have 30 months or more.

Although the numbers are disconcerting enough, actual inventory levels may be higher than the levels currently being reported. According to Calculated Risk, the NAR does not always include distressed properties in their exiting home inventory report. Some REO properties are included and some are not. Since distressed properties account for significant portions of housing supply in some areas (12 percent in Orange County, CA for example), it is likely that real inventory levels are well above NAR estimated levels.

Top 10 Cities with the Most Unsold Home Inventory*

City	Total Inventory	% Chg from Last Yr	% of Homes w/ Reduced Prices
Los Angeles	111,269	21.0%	45.9%
Chicago	82,839	17.2%	40.8%
Miami	79,154	27.8%	38.1%
Tampa	58,601	12.9%	42.3%
Phoenix	54,536	20.9%	47.1%
Washington	52,854	9.8%	46.8%
Dallas	47,097	-2.4	35.9%
Boston	43,158	-5.8%	48.4%
Sacramento	40,195	9.5%	51.4%
Houston	39,332	15.8%	36.7%

Source: Business Week

According to data from ZipRealty, Los Angeles, Chicago and Miami are the cities with the biggest glut of housing inventory. The home supply increased an average of 22% in the three cities compared to the previous year. Nearly half of the homes that are currently for sale carry reduced price tags.

Home values are already slipping in nearly all of these areas. The most recent S&P/Case-Shiller Home Price Index shows annual home price declines of 7.8 percent in Miami, 7.2 percent in Washington, 5.7 percent in Los Angeles, 8.0 percent in Phoenix, 10 percent in Tampa, 3.6 percent in Boston, and 1.3 percent in Chicago. The only city on the list that had real home appreciation in the last year was Dallas, which recorded a modest 0.5 percent price increase, according to the Case-Shiller Index.

If housing inventory continues to swell-and there is absolutely no reason to think it won't-home sales will continue to suffer, and home prices will fall a little further.

*Inventory figures as of September 30.

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