Reventure Consulting's preliminary housing inventory analysis for the April 2023 Housing Market is in. And the results are...mixed to say the least.
Let's start with the bad news first.
Bad News: Inventory collapsed in Phoenix, Vegas, and SoCal
At the end of each month I manually pull inventory data for homes and townhomes off Zillow for 54 large counties in America. This month 27 of those counties reported an inventory loss.
With some counties in the Southwest reporting BIG inventory losses.
In particular, Maricopa County in Phoenix registered a whopping -10% drop in inventory in April. Riverside County in California was at -7.3%. While Clark County in Vegas was at -7.1%. Lower inventory in these markets is putting a temporary floor on prices. And even causing home prices to go back up in some cases.
But what I find really interesting about these markets is why inventory is declining.
In a market like Las Vegas, inventory was driven down by a complete collapse in new seller listings. Which were down an astounding -39% YoY in April according to data from Redfin.
Such a voluminous drop in seller listings has to the power to nuke inventory levels. Even in an environment where hombuyer demand is still on the decline. The same data from Redfin shows home sales in Vegas were down -31% YoY. Close to the lowest levels on record.
So the Vegas Housing Market - to go along with Phoenix, Riverside, and many other parts of California, is frozen. There are no sellers. There are very few buyers. Inventory is declining. And prices are trading sideways.
When will the Stubborn Sellers Capitulate?
The stubbornness of sellers in markets like Las Vegas presents an unexpected twist in the 2023 Housing Downturn. One that complicates projecting how the future of this Housing Market will play out.
Clearly, homeowners across much of America are exhibiting some combination of a...
1) hesitancy to list their homes in a down market
2) desire to keep their low mortgage rate
3) general fear due to economic uncertainty and the banking crisis
Which is causing them to tightly clasp onto their homes and refuse to list. A tendency that seems to be highest on the West Coast of America.
California's new seller listings were down 34% YoY according to Realtor.com. Nevada, Washington, and Oregon are also experiencing a dearth of sellers listing their homes. There is also a shortage of seller listings occurring in the Northeast.
Meanwhile, Texas, Florida, and the deep South aren't experiencing the same type of listing shortage. New listings are down in these markets, but not by nearly as much. Which is resulting in more buoyant inventory levels this spring.
One explanation for the regional difference in seller listings could be home building. Builders are still very active, and mostly build in the South. And thus the builders could be supporting the new listings in Southern States.
However, the home builder argument doesn't explain why listings are down in Arizona, Nevada, Colorado, and Washington (states where builders are fairly active).
Mortgages are a Big Factor. States with more Mortgages have fewer Listings.
But as I dug into the data I noticed a trend: Mortgages. The States with the highest share of Homes with a Mortgage are the ones where Seller Listings are down the most. And the relationship is fairly strong, with an r2 of 0.33.
Homeowners (and investors) in states like California and Massachusetts are experiencing the "lock-in" effect, where they don't want to give up their 3% mortgage rate in exchange for a 6%+ rate in today's market. And thus they aren't listing their home.
Which is logic that makes sense on the surface...
But when you start really thinking about it, it doesn't make sense. Because the presence of a mortgage on a house, whether it's at a 3% or 6% rate, leads to a much higher payment compared to a house owned free and clear.
The higher payment, combined with the presence of a mortgage lender who will foreclosure on the house if they don't get paid, should increase the odds of distressed selling in markets where there's a lot of mortgages. And lead to more new listings compared to markets with fewer mortgages.
But the exact opposite is happening right now.
How long can Mortgaged Sellers Hold Out?
How long can this curious situation last? Where the more mortgages and debt service burden there is, the fewer new listings there are?
As I discussed in a post last week - it will likely take a higher unemployment rate and increased mortgage defaults to force more new listings onto market.
Which is something that will happen at some point. It's just a matter of when. To understand why, consider the case of California. The state's current unemployment rate of 4.4% is near an all-time low. Meaning that few mortgaged homeowners feel the financial pressure to sell.
But historically in recessions the California unemployment rate usually explodes to 10% (it has in five of the last six recessions. The state's best performance in a recession occurred in the 2001 dotcom bust where the unemployment rate peaked at 7.0%).
So if the California unemployment rate follows the historical trend and surges up to somewhere like 9-10% in this recession, that would result in a doubling of the number of unemployed people from 850k to 1.7 million.
If you assume that just 10% of the newly unemployed were forced to sell their house, that would dump 85k additional homes on the market. Which would cause a quadrupling of inventory on the California Housing Market (35k homes --> 120k homes).
Now that's all hypothetical. But it hammers home that the economic distortions and money printing that occurred during the pandemic are still weighing down on the Housing Market. Ultra-low unemployment rates mean there's little forced pressure for mortgaged owners to sell. Meanwhile, 2+ years of foreclosure bans and moratoriums have given owners the impression that even if the default, they won't be foreclosed on.
Which is translating to a record-low number of new listings onto the market. And suppressed inventory levels in many states.
How about some Good News? Inventory increased in 50% of the Counties I track.
How about we end with some good news on the inventory front? Inventory did increase in 27 of the 54 Counties I track in April from my manual inventory pull from Zillow.
And in some counties inventory increased substantially from the previous month. Particularly in the Northeast and Midwest.
Washington DC, New York, Minneapolis, and Detroit saw sizable increases in homes for sale in April. Which is welcome news for homebuyers in these inventory-starved markets. However, we'll need to monitor the data in coming months to see if the recent inventory build in the Northeast and Midwest is a seasonal blip, or part of a new trend.
Other Midwest markets that witnessed inventory increases include Columbus, St. Louis, and Indianapolis. Moving down to the Southeast, Atlanta also popped up several times, with Gwinnett, Fulton, and Cobb Counties registering hefty inventory builds in April.
To be clear - inventory in most of these markets is still low. But positive measurements in April represent a step in the right direction.
Check out Inventory & Mortgage Data on Reventure App
Reventure App contains inventory data for every State, Metro, County, and ZIP Code in America going back to 2016. Understanding the inventory trends in your market is essential in helping you make a better decision about when to buy.
Currently the inventory data is updated through March 2023. Next week it will be updated for April's data.
Also make sure to check out the Mortgage Data that Reventure App has to offer. Using data from the US Census Bureau, Reventure App allows you to see the share of Homes with a Mortgage in every State, Metro, County, and ZIP Code in America.
To access: go to "Select Data Point" --> "Real Estate" --> "Click to See More" --> "Mortgaged Home %"
I find that this data is fascinating to look at by ZIP Code. Like in the snapshot of the Dallas metro below. You can see the neighborhoods south of downtown Dallas have very low shares of mortgages (only 30-50% of owned homes). While the areas East and North of Dallas have a higher mortgaged share around 70%.
Interestingly - it was those low-mortgaged ZIP codes south of Dallas that had the biggest crash in the 2007-12 downturn. Likely because they had a higher share of speculative investor activity. But that's analysis for another time.
Lastly - let me know your thoughts on Reventure App and if there are any ways you would like to see it Improved!
We are hard at work trying to make Reventure App better. Two big points I am focusing on this month are:
1) Making it run faster
2) Creating a more intuitive interface with less clicking necessary to find the data and geographies you want to see
These updates should be rolled out over the next month. But in the meantime - I'm curious to hear more feedback about things you would like to see added or improved to Reventure App.
Let me know in the comments below.