Thursday, February 15, 2007

Going out on a limb-inventory

I'm going to go out on a limb and predict the maximum housing inventory for 2007.
What I've noticed tracking home inventory in 2006 is that the maximum inventory was at the end of September. I also noticed a fairly linear climb up to that point. Well... this year's inventory is climbing at 1,776 homes per day. In fact, it seems that we have enough data to stab a guess... We start with the 933,969 homes on the market today (circa 5:15 pm). I note there are about 227 days to the peak... (I'm predicting it will be a little later) and I get 1.33 Million or so.

Thus, I'm predicting a maximum national home inventory of 1.3 to 1.4 homes per Ziprealty in 2007. This compares with 985,000 I recorded on september 20th, 2006. If 985,000 homes were enough to drop prices a small amount, imagine what another 300,000 to 400,000 will do to seller confidence this year.

That does imply 2008 starts the year with over 1.1 million homes in the inventory... in other words in a deflationary slide.

The difference in slopes is interesting too. 2006 gained inventory at 1,287 homes/day. 2007 is thus growing at 138% of last year's rate. Let's call it a growth rate that is 1/3rd faster. I believe that difference is entirely due to the sub-prime fiasco. Just as home builders start putting fewer homes on the market FB's will take up the slack by listing their homes at wishing prices.

Do read my previous post from today on RE emotions (update). This is a slow train wreck that will take a long time to sort out. However, this time... its different. Its going to happen faster than ever before. When will it end? Good question. I think buying a residence will hit an effective after tax bottom in 2009. I'm not saying that's the bottom of prices, but that after then the integrated forfitted income tax advantage is greater than the lost equity.

We'll have to wait for REO's to get any substantial drop in sales prices. Until then, its a slow steady drop. But just as the inventory hits its September peak... we should have a nice influx of REO's. In other words, double trouble.

Oh... that could mean an even later peak...

So if we see 1.5 million+ homes in the inventory in 2007 due to REO's re-entering the market... dragging the peak into November... I'll admit my prediction was off, but not that I'm suprised. Just as in 2006 forces conspired to keep homes off the market... they'll do so again in 2007.

I'm waiting until well into 2008 to even consider buying. Again, the utilization value on home ownership that I put on a home is high. In that case, one would buy near peak selection and accept missing minimum pricing. Cest la vie. You need to decide what's right for YOU.

Got popcorn?


Anonymous said...

So why do you think the bottom will come in 2008 - maybe prices will keep going down for 15 years like in Japan. It's not unreasonable to think prices might plunge below the norm especially if we have a serious recession.


bearmaster said...

Hey there, am I remembering right that there are pending nuptials this spring? Let me know, I want to send you all a little gift.

BTW, my housing bubble blog wouldn't be what it is without your encouragement!

wannabuy said...


Yes, my nuptials are in May. :)

Your blog is what inspired me to start blogging. I'm just here to see when to buy a home.

We could be in for a much longer downturn. That I agree with. So if in June of 2008 I was wrong to say wait for fall 2008... We can enjoy a bit of good Cabernet while munching on pop corn laughing at what I missed. Heck, I've already tripled my time frame already! So extending it again... My ego can take it.

But at some point the tax savings are greater than future downside risk...

But not in 2007.
Not 1H 2008 either.

So shall we agree to discuss about this in a year again?


GoBig said...

I think you are right about the inventory skyrocketing. I keep hearing about folks listing in the Spring to "maximize" thier my opinion a big mistake. Also, there are many homes up for know, the negative cash-flow mentality (rent is less than P&I). So while homes are up for rent (vacant), they're kind of hard to sell, who wants to rent a home while it's being sold. These sellers (or potential sellers) will rent them out today and then put them up for sale tomorrow (Spring) with the renters already committed...poor renters.