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October Scares More Homes off the Market

by Chicago Agent

Spooky market conditions continue to shrink housing inventories.

Year-over-year housing inventory was down 21 percent in October, according to a RE/MAX housing report cited by HousingWire.

The decline is the 16th straight month of falling inventories. In addition, agents reported a 7.7 month supply of homes to clear market inventory; typically, a six month supply signals a healthy balance between supply and demand, but the number is an improvement from December 2010, when the 11 month’s supply was the highest on record.

Falling inventories, though, are not necessarily a good thing, as they risk dampening any meaningful recovery in housing.

As we reported one month ago, falling supply can mean many things, but it primarily comes down to two factors: listings and foreclosures. For the latter, banks have been slow in unloading foreclosed properties since the robo signing scandals of 2010, but foreclosures are expected to tick up dramatically in the coming months. Although that adds to supply, it may inversely affect the former factor, listings.

With prices falling as much as they have, housing affordability is at its highest level in decades – and often, owners of prestigious, valuable homes are unwilling to accept the substantial losses that such prices all but guarantee. So, the most desirable homes end up staying off the market, joining the million-plus homes in the “shadow inventory” and leading to further depressed home sales.

Additional foreclosures only complicate the matter. Vacant properties often sit on the market for months at a time, and as the price of those properties fall, so do the values of other appraised properties nearby. Do more foreclosures signify more shadow inventory homes, as prices decline? Only the data will tell.

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