Housing inventory has fallen precipitously the last 12 months, but could things be different in 2013?

By Peter Ricci

Yesterday’s existing-home sales report from the National Association of Realtors’ made two points perfectly clear: one, that existing-home sales are showing promising trends for 2013; and two, that housing inventory has fallen just about as low as it possibly can.

Indeed, housing inventory in December was down 8.5 percent from November and 21.6 percent from December 2011, and at just 1.82 million homes for sale, is now at its lowest level since May 2005. Has housing inventory, though, finally bottomed? And can we expect, therefore, housing inventory to increase in 2013?

3 Simple Rules for a Low Housing Inventory

As the excellent Nick Timiraos wrote yesterday in the Wall Street Journal, a number of causes have produced today’s dwindling supply of active listings:

• With home prices falling as much as they have since 2006 (by 26.8 percent, according to CoreLogic’s latest numbers), more than 10 million homeowners are underwater on their mortgages, and another 10 million have less than 20 percent equity in their homes, meaning any trade-up options are scant.
• And though housing prices are increasing (aggressively, even, by some measures), there are many sellers opting to wait for prices to recover further, and for logical reasons – why sell, after all, if your home is worth 5 percent more in another year?
• And finally, a number of channels have been limiting the typical supply of homes; investors, for one, have been purchasing homes and renting them out, rather than selling them for a quick profit; banks have been a bit slower letting shadow properties back on the market; and finally, builders cut way back on their construction efforts following the overbuilding of the boom years, though recent numbers suggest that trend may be changing.

Will Housing Inventory Increase in 2013?

So with all those forces in action, does housing inventory have any chance of increasing in 2013? Some fascinating statistical gymnastics over at Bill McBride’s Calculated Risk blog suggest that maybe – just maybe – that could be the case.

According to numbers that McBride received specially from the Department of Numbers, housing inventory has been increasing at a normal rate for the first three weeks of 2013, meaning it has gone up at the same rate as years past. Though we’ll obviously have a better idea on housing inventory a couple months from now, this is an interesting change of pace, given how the housing supply concluded in 2012.

And Ralph De Martino, the president of Ocean International Realty, said there is a chance that housing inventory could go up in Miami, though not by much.

“I predict that getting additional inventory will be very difficult in 2013,” he said.

Though rising home prices will allow more home sellers to enter the market, De Martino said, many sellers may decide to wait for prices to further recover, particularly sellers who do not have to move or do not want to move.

“They’re just going to hang in there,” he said. “They won’t sell.”