As more and more data begins to come in, there is mounting evidence that real estate values may take a second slide downward. Pricing of any item is determined by the ratio between ‘supply and demand’. We just need look at a graph constructed by Calculated Risk along with their explanation to prove this theory also applies to real estate:
“This graph shows months of supply and the annualized change in the Case-Shiller Composite 20 house price index. Below 6 months of supply (blue line) house prices are typically rising (black line).
Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.
The dashed red line is the estimate for months of supply in July. Through the roof! And I expect we will see double-digit months-of-supply for a number of months.
This is a key reason why I expect house prices to fall further later this year.”
Why the increase in months’ supply of inventory? Demand for housing in the second half will be stable at best. At the same time more and more sellers (homeowners and banks holding foreclosure properties) are beginning to realize that this may be the time to put their houses on the market before prices drop any further.
Lawrence Yun, chief economist for NAR, believes demand will actually drop off.
“Home sales in the second half of this year will be markedly slower than in the first half of 2010.”
Jed Smith, Managing Director, Quantitative Research for NAR, explains why inventories will increase:
“As of the first quarter of 2010 over 6.5 million homes were in foreclosure or had overdue mortgage payments. Possibly as much as 75 percent of the shadow inventory will ultimately be sold as distressed… A number of homeowners who have deferred listing their homes due to market conditions may also now reenter the market, resulting in increased home inventories as the economy recovers. Once the employment numbers improve, pent-up demand may help to increase sales. In the short run, however, we may actually see additional inventory on the market as a result of listings by deferred sellers.”
Will a double-dip occur? The chances are increasing. As always, we’ll keep you current on this important matter.
