Report Says Realtors’ Existing Home Supply Understated by "Millions of Homes"

A report just released by RadarLogic states the obvious by saying “housing is a buyer’s market” which, I think by now, we all know. However the report goes on to dig into the driving forces behind this buyer’s market and makes some interesting (and concerning) observations including the fact that, while the National Association of REALTOR’s (NAR) reported that the inventory of homes for sale in January dropped to 2.31 million homes (a 6.1 month supply and the lowest level since 2006) this does not take into account vacant homes that have been held off the market, homes that have delinquent mortgages on them and are headed to foreclosure or in the foreclosure process, nor homes with underwater mortgages. This is a large pool of homes that while they are not “on the market” now, a large percentage of them likely will be in the coming months and years thereby increasing the inventory of homes for sale.

In fact, Radarlogic estimates that the figure of 2.31 million existing homes for sale by NAR “probably underestimates the current supply overhang by millions of homes“. They come to this conclusion as a result of the following facts:

• There are some 11.1 million homes that are underwater (the mortgage balance exceeds the property value) and, given this, are at an increased risk of falling into foreclosure.
• There are 2.1 million homes in the foreclosure process at this time and the vast majority of them will enter the market via REO sales.
• The rate of homes with loans that are 90+ days delinquent remains very high and it is likely the bulk of the 1.8 million loans in this category will end up in REO inventories and be put up for sale.
• There are 3.6 million vacant homes held off the market which will eventually be put up for sale.

Other highlights from the report:

• Home sales increased in 2011 but the increased sales were a result of sellers dropping prices to meet the offers of “bargain-hunting” buyers.
• Would-be home buyers are still experiencing difficulty accessing financing.
• Home prices in distressed sales declined slightly in 2011, but less than prices on non-distressed sales did, thereby closing the gap between distressed and non-distressed home sales.

Source: (Chart) - Radarlogic

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