You’ve heard reports that listing inventory has been coming down for many months.  This is true, and not only have buyers absorbed all new inventory coming onto the market, they have also helped to purchase a backlog of existing inventory as well.  We wondered if inventory levels relative to home sales were declining in all price segments, so the first thing we did was looked at what the month’s supply of inventory was back in January in our State of the Market Report.
We decided it would be interesting to compare inventory levels from about 8 months ago to where they are today and sort them by price range to see which price ranges are hot and which ranges are not.

SW Florida Real Estate Inventory by Price Range
The results are in and you can tell by the graph that the most dramatic changes are in the 0-$100,000 range and the next one up at $100-$200,000 ranges.  Months supply of inventory fell dramatically in the entry level markets, down from over 20 months to just over 4 months.  First time home buyers and investors are scooping up these bargain properties as quickly as they enter the market.  The 100-$200k range has also done well, declining from 12 months supply to 7.82 months supply just since January.  As we reported last week, the first time home buyer tax credit is helping first time home buyers in the entry level market and this graph supports that. However there is nothing in the tax code that helps the broader market and perhaps this is why we haven’t seen the move-up buyer.  In fact, we have seen many first time home buyers buying short sales and foreclosures. As we know the banks won’t be buying anything after the foreclosure sale and short sale sellers won’t be buying for a while until their credit is repaired.
This is why we’ve advocated an across the board tax cut for all buyers.  The real estate market is 26% of GDP and has led the economy out of each recession. Our economy would be better served if we invest in strengthening the entire real estate market and it will lead us out of this recession.  We’re not in favor of all these government bailout programs. However, if we are going to invest money it would make sense to spend it in areas that actually may work vs. what our government has been doing.  We’ve seen TARP money for the banks, a stimulus package that so far hasn’t produced jobs as advertised, and a bailout for auto companies.  The cash for clunkers was a success in that it spurred car sales. If spurring across the board home sales helps get our economy back on track, it might be worth looking at.
Once we get to the $200k+ range the numbers begin to look eerily similar to what they were in January.  There is improvement, and I’m sure all SW Florida home sellers will take improvement where they can find it.  We are not seeing improvement in sale prices and in fact sale prices are still falling in the $300,000 + ranges.  We have seen a bottom form in the entry level home prices, and certain waterfront property seems to be holding its own as well.
One bit of good news is we are seeing northerners buying second homes in SW Florida as prices have dropped to affordable levels.  Northerners are afraid these bargains may not be here in a few years when they’re set to retire and in many cases they may be right.  Prices are below replacement cost and this will not last forever once inventory is absorbed.  While there is pent-up demand for bargain properties, there could also be pent-up supply from home sellers who would like to sell but just can’t today due to the prices.  Once the market levels out across the spectrum, it will be interesting to watch and study those forces.
For now, we see another year of banks shedding bad loans.  We expect several of the large banks to essentially double the foreclosures.  All you have to do is study their SEC filings to see that this coming year most banks are budgeting twice as much in write downs as they did last year then do the math.  The good news is our market is absorbing that inventory.  The bad news is that pent-up supply of home sellers who would like to sell may be put off in time.  Let’s just hope enough can hold on until we adjust through this next wave, and let’s hope Congress addresses strengthening the entire real estate market, not just the entry level.  As you can see by the graph, home sales aren’t trickling up.  If we strengthen the entire market, there will be less bank foreclosures, more families will stay in their homes, and the economy recover sooner, thereby creating jobs again.

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