From Daily Real Estate News | Thursday, August 04, 2011

High inventories of homes for sale have plagued many markets, but in a recent analysis of metro areas, inventories were found to be shrinking sharply during the second quarter, The Wall Street Journal reports.

About 2.34 million homes were listed for sale on the multiple-listing service by the end of June, the lowest level for that time of year since at least 2007, according to Realtor.com. What’s more, some inventory levels even reached their lowest levels since the housing crisis began five years ago, which has prompted some markets to even say their facing a shortage of homes on the market.

While a drop in inventories can often signal more demand — and ultimately a boost to home prices — some analysts are not so sure this signals a complete turnaround for the real estate market quite yet.

“While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures,” The Wall Street Journal reports. (The number of homes in foreclosure — a backlog of 2.1 million — is near a high.) In addition, some sellers are taking their homes off the market due to low offers and waiting until they put it back on the market.

In its analysis, The Wall Street Journal found that of the 28 major metro areas evaluated inventory levels had dropped in all 28 — except for three. What’s more, they found that inventories had dropped by double digits in 16 of those markets during the second quarter when compared to a year ago.

The graph below shows a reduction in inventory for zip 85122, however if you notice pending and sold homes have remain consent. With inventory coming down and sales remaining steady, the only conclusion is that prices of homes will start to climb.  Supply and demand dictates price.

The graph below for zip code 85122 shows the monthly absorption rate or the amount of homes for sale in monthly inventory as less than 4 months compare to the same time last year of  8 months supply, that’s more than 100% drop in available homes for sale.  While you’re sitting on the sidelines waiting for the market to drop out, buyers aren’t.