Inventory Shrinking for Entry-Level to Move-up Homes

When running around the St. Paul area real estate market these days, there is a noticeable drop in inventory for entry-level to second-home price range properties. This may not be true for every city or town, but I have definitely noticed it in some of the prime locations that I work in. For example, the buyers I have been working with in Woodbury, Oakdale, Cottage Grove and Stillwater in Minnesota and for Hudson, Roberts, and River Falls in Wisconsin, the inventory of quality homes for sale in these areas have been lacking to the point where buyers are not able to find a home to purchase without ending up in multiple offer situations due to the lack of options for the buyers. There are probably more options for buyers looking for townhomes than for single family houses, but even for buyers of townhouses the inventory has been shrinking. 

In the lower price ranges for first time buyers there is a small level of real sellers. The majority of properties in the entry-level price range are either short sale, foreclosure, or bank-owned properties. The distressed market makes up the majority of the inventory for this price range, and therefore a first-time buyer will have a harder time finding a move-in-ready home. 

For the average second-home buyer, we are running into a different issue. Your average move up buyer is having a harder time selling, and therefore there are not a real good level of inventory for the buyer looking for that second home. In order for the inventory to open up for the first-time owner to find that next home, the average home owner needs to be able to sell and move to the upper-end housing market. 

As most of us know, the biggest issue with sellers is the large drop in values of their homes. The shrinking inventory levels should usually bring up pricing, but the only way that will happen is for the level of short sales and bank-owned properties to decrease in the market. We will likely be dealing with the foreclosures for a few years yet, but if the levels can begin to decline we should begin to see pricing start to slowly return. We are starting to see signs of that happening, but it will likely take some time to see any significant gains. 

In the last few years since the boom of the market, the inventory levels of homes has dropped by half! This is significant and should be the beginning of the rebound, but to see any real returns of pricing we need to get a bigger reduction to the distressed market. We are expecting to see more positive signs in the market for 2012, but we should just expect to see the rebound to be slower. If you are an upper-end home buyer, you should be loving the market as there is still plenty to choose from. Although, with the highest level of home affordability in our recorded history, it is still a great time to buy for all buyers. Low interest rates and low home prices make this a great market for buyers.