By Carla Hill
Low inventory levels are bringing a faster turnaround for today's sellers. From 1987 through 2011, analysis of the NAR Profile of home buyers and sellers series showed the typical time on market was 6.9 weeks, while the existing-home sales series showed an average supply of 7.0 months, just above the high end for a balanced market.
Today's median time for a home to remain on the market is 69 days (July 2012). This is down nearly 30 percent from the 98 days seen in July 2011. The NAR reports that during periods which see close to a six-month supply, such a now, homes have a median selling time of six weeks.
Inventory levels remain low, with a 6.4-month supply of homes on the market in July. This is down 31.2 percent from a year ago. Last July saw a 9.3-month supply of homes on the market.
Lawrence Yun, NAR chief economist, said there is a clear relationship between inventory supply and time on market.
“As inventory has tightened, homes have been selling more quickly,” he said. “A notable shortening of time on market began this spring, and this has created a general balance between home buyers and sellers in much of the country. This equilibrium is supporting sustained price growth, and homes that are correctly priced tend to sell quickly, while those that aren’t often languish on the market.
“Our current forecast is for the median existing home price to rise 4.5 to 5 percent this year and about 5 percent in 2013, which is somewhat stronger than historic norms because of the inventory shortfall that is most pronounced in the low price ranges,” Yun said. CPI growth is projected at 2.1 percent for 2012 and 2.3 percent next year.
There's a new measure today from the NAR for days on market, which is showing a longer selling time than historic findings – which measured traditional sellers of non-distressed homes. The new measure includes short sales, a significant part of today's marketplace.
“Factoring out short sales, the median time on market for traditional sellers appears to be in the balanced range of six to seven weeks,” Yun explained.
How do today's numbers compare to the peak of the housing boom? Between 2004 and 2005, when inventory levels were historically low, the median selling time was 4 weeks. Prices rose in response — at an annual rate of 10.3 percent, historically higher than the 3.1 percent average growth in CPI during the period.
In the economic downturn, time on market for non-distressed sellers peaked at 10 weeks in 2009 with a 10.0-month annualized supply. The median price fell 12.9 percent that year, which was the biggest annual decline on record.
“Ironically, if housing construction doesn’t pick up to normal levels within two years, supply shortages could be sustained for an extended period and lead to above average appreciation,” Yun said. “Therefore, any unnecessary hindrance to housing starts, such as excessive local zoning regulations or stringent bank capital rules for construction loans, should be carefully re-examined.”
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