Inventory Level Explained

Earlier today a question came in on Trulia Voices. A potential home buyer had inquired about the current inventory of homes at $300,000. Since the inventory level for a single specific price is not very useful I have chosen to form a price point defined by $300,000 plus or minus ten percent, giving us the bounders of $270,000 to $330,000. Using this price range we get an average price of active homes at $299,551.
The Humble inventory level for this price range came in at 8.6 months of inventory which is considered buyer’s market territory. Nearly all economists would agree that an inventory level in excess of 7 months leaves buyers in the driver’s seat when negotiating a transaction. Furthermore we generally see price declines occur when inventory exceeds 9 months. With this price point sitting at 8.6 months of inventory I would be inclined to suggest that we may see price declines assuming that over the next couple of months we do not see the inventory absorbed.

TOTAL BREAKDOWN OF HOUSING INVENTORY FOR THE HUMBLE HOMES MARKET

Every price category we have been following saw inventory increases over the last month, except for the $80,000 and below price point. On March 4th, 2009, the total Humble housing inventory statistic came in at 6.3 months of inventory. This jump pushed the overall market out of true neutral market territory and into what many would call a buyer’s market. Seeing only slight increases in the total number of active listings, the substantial change in the inventory statistic must be due to a continued drop in the number of sales in the market place.

The $80,000 and below Humble housing market saw a big drop in months of inventory posting just 3.1 months compared to 4.1 months at the end of January. The continued absorption of inventory in this price point is largely due to investors gobbling up properties that make for excellent monthly cash flow when rented. I expect this trend to continue because of the very strong rental market that we are seeing all across the Houston metro area. In case this is the first one of my reports that you have read, inventory levels below the 5 month mark are considered to be a seller’s market in the eyes of economists.

Inventory for the $80,000 to $150,000 price point did not fair nearly as well as that for the $80,000 and below price range. This market posted 6 months of inventory, as of March 4th, 2009, which is up substantially from the 5.2 months noted in our last Humble housing market report. Even though 6 months of inventory misses being considered a buyer’s market, the sharp turn up in inventory does not sit well for sellers, however, it is a move in the right direction for buyers actively looking for a home. If this upward movement in inventory continues, buyers will soon see the upper hand in negotiations when entering into contract with sellers.

The $150,000 to $300,000 price range witnessed a move into what would be classified as a buyer’s market over the period. As of March 4th, 2009, housing inventory posted at 6.9 months compared to the more modest level of 6.2 months of inventory as seen at the end of January. So, if you are a buyer, you will likely see more strength at the negotiation table making it much more likely that you can get the seller to make repairs or pay a portion of your closing costs.

The $300,000 and above market saw a continued strong movement up in inventory moving to 9.9 months of inventory up from 9.2 months noted in the last Humble housing inventory report. This pushes this price point further into a deep buyer’s market, where it is very likely to see price drops. The price drops are in large part due to the major strength that buyers have in the negotiation process. I believe that this increase in inventory levels is mostly thanks to the troubles in garnering financing in the higher end housing market. Right now, it is pretty easy to obtain a home loan within the FHA loan limits (which is a loan amount of $271,500 in our area). Furthermore, these loans can be obtained for as little as 3.5% down. Once you move above this price range, financing tightens up, requiring a larger down payment. Once you surpass the $417,000 point for loan amounts into what is called the jumbo market, it gets very difficult to get a loan. Most lenders require as much as 25% down and are charging steep interest rates that run 2-3% higher than those that can be obtained below the $417,000 point.

HUMBLE INVENTORY REPORT FOR 80,000 AND BELOW

HUMBLE INVENTORY REPORT FOR 80,000-150,000 PRICE POINT

HUMBLE INVENTORY DATA FOR THE 150,000-300,000 PRICE RANGE

HUMBLE HOUSING INVENTORY DATA FOR 300,000 AND ABOVE

CONCLUSION

Increases in inventory for the market place should not be surprising since there is a lot of apprehension on the part of buyers right now. Some of this concern is well-founded. Some of it is not. It is highly unlikely that the Houston area will see large price drops like many of the other parts of the country, but those thinking about purchasing a house need to ensure that they do not over extend themselves. I am in the process of trying to reduce buyer worries about making a purchase by arranging insurance for all of my buyers against job loss. I have found an insurance product that will make ones mortgage payment if they were to get laid off. I am hoping that this will help those individuals that have a unique buying opportunity in this market. First time home buyers have a unique opportunity to receive an $8,000 tax credit, some of the lowest interest rates in 30 years, and plenty of inventory to choose from. Another group of buyer with a great opportunity are those that want to move up and own a home around the $150,000 and below mark, as they are likely to get top dollar for their homes, and then will be able to have an upper hand in negotiations when they go to purchase their new home in the higher price points in the market place. The one group I would strongly suggest that they wait if possible is those who are looking at downsizing, since they will likely have to give concessions to get their home sold, but then will end up not having a lot of negotiation strength when they go to purchase their next home. So, if you are selling a home in the upper price ranges and want to move into a smaller place, I would strongly suggest that you hold off until the market improves.

This is the Humble homes for sale site’s third inventory post for the Humble, TX single family real estate market. We will be discussing the current months of inventory, average price and number of homes sold during the period. If you have questions or would like to add your own insights to this information, feel free in doing so in the comments section at the bottom of the page.

TOTAL BREAKDOWN OF HOUSING INVENTORY FOR THE HUMBLE HOMES MARKET

The Humble real estate market posted mixed results for this month. The good news is that inventory is down considerably, and the number of homes sold over the period did not fall excessively. The bad news is that the average price of single family homes fell over the period. As of January 19th, 2009, the Humble single family inventory came in at 5.8 months down from the 6.2 months posted around this same time last month. The decline in the average home sale price amounted to approximately $2,000 and could easily have been due to a decline in the number of sales in the higher price ranges.

The $80,000 and below price point had 4.1 months of inventory on January, 19 2009, which is a return back to the 4.1 months of inventory recorded November 25, 2008. This reinforces my assumptions that the leap in the inventory levels we saw in December was likely due to the seasonal drop in sales, while we saw the same number of foreclosures come onto the market. In addition to inventory levels declining over the period for the $80,000 and below price range, we also saw an increase in home sales in this price range over the period.

Inventory for the $80,000 to $150,000 price point came in at 5.2 months of inventory, which is a substantial decline from the 5.7 months of inventory noted for both December and November of last year. This level of inventory leaves us at a point considered by most to be a neutral market. The number of home sales and the average home sale price did not see a significant change from last month.

The $150,000 to $300,000 price range saw inventory creep down the same one tenth of a month of inventory to 6.2 months from the 6.3 months seen around this time in December. When it comes to total number of single family homes sales and average home sale price, this price range also held rather steady.

The Humble single family housing inventory for the $300,000 and above price point saw a much smaller drop in inventory than was witnessed from the month before. As inventory came in at 9.2 months of inventory on January, 19th 2009, two tenths of a month lower than the 9.4 posted at this time in December. However, it was not all good news for this price point. We saw a continuation of the drop in number of sales we have been experiencing as of late. In addition to this, we witnessed a notable drop in the average home sale price for this price range. The drop is likely due to the continued difficulty of obtaining a loan that does not fall within the FHA guidelines for a FHA loan. Data for each price range can be found in the tables below.

HUMBLE INVENTORY REPORT FOR 80,000 AND BELOW

HUMBLE INVENTORY REPORT FOR 80,000-150,000 PRICE POINT

HUMBLE INVENTORY DATA FOR THE 150,000-300,000 PRICE RANGE

HUMBLE HOUSING INVENTORY DATA FOR 300,000 AND ABOVE

Conclusion

My analysis of the period witnesses a peculiar result of falling inventory despite a drop in the average home sale price. Ultimately, the only logical explanation for this is that the increase in sales at the lowest price ranges and the decrease in the number of sales in the highest price ranges have reduced the reliability of the average home sale price as an indicator of the direction of home values. With inventory levels having declined to fall into either the neutral or seller’s market range, we should see prices hold rather steady for the $300,000 and below price ranges. However, the $300,000 and above price range remains above 9 months of inventory suggesting a buyer’s market and leaves me forecasting home value declines for this price point. This data set provides a positive outlook for one class of buyers and that is those looking to move up into a larger home or a home in a more desirable area. Those home owners that are interested in moving up should be able to gain fair market value for their home, and at the same time, should have an advantage in negotiations with sellers in the higher price ranges. This makes it a wonderful time to move up if one feels that they can afford to do so.