RealEstateEconomyWatch.com

The unprecedented and unexpected crash in inventory that is driving the nascent recovery by bolstering prices increases began in July, 2010 when listing counts on Realtor.com topped 2.8 million, and two years later have fallen by more than a third.

Even as the summer selling season ends, inventories on Realtor.com, which aggregates listings from more than 900 multiple listing services, are stilling declining an a double digit rate, falling more than 18 percent in August since 2011. Department of Numbers, which also tracks listing trends but accesses few MLSs, reports listings as of today are down 22.4 percent from a year ago.

However, two-year comparisons give a better sense of how far inventories have fallen in just two years. Since August 2010, when the decline began following the expiration of the federal tax credits earlier that year, Realtor.com carries nearly one million fewer listings?955,575?than it does now. That’s a 34 percent decline. At the height of the boom, in September 2007, Realtor.com carried more than 3.1 million listings.

Listings increased on a monthly basis from February through May in both 2011 and 2012 as sellers listed their homes at the outset of the spring-summer buying seasons. However, in both of those periods, monthly inventory totals were lower than they were 12 months earlier.

Over the two-year descent, the markets registering the greatest year-over-year decline in listings have changed but they share common characteristics?high levels of negative equity and low prices. In August 2011, a year into the decline, the markets leading the way were cities that had been ravaged by foreclosures in part because prices had fallen so low that owners were under water. These included Miami, Orlando, Phoenix, Boise and Ft. Myers.

After two years of lower inventory levels, prices improved enough in those markets to stabilize price and supply. Now new cities have taken the national lead for declining inventories, all in California where negative equity remains high: Oakland, Stockton, Fresno, Sacramento, Riverside, Bakersfield and San Jose.

The next quarter will demonstrate whether the inventory decline is finally ending or not. As we enter the fall, we pass the second anniversary of the beginning of the inventory and year-to-year comparisons are with months that already have experienced a 12 month drop. Realtor.com’s 1.84 million listing total in August 2012 is not far below last December’s 1.89 million listings. As activity slows this fall, the inventory decline may flatten out as the fall and winter months settle in, though that was not the case last year, when levels continued to fall until February 2012, when the seasonal build-up for the spring season began. This year, inventories are not falling as fast as they once were: Realtor.com’s inventory fell only 1.2 percent from July to August and Department of Numbers fell 2.8 percent from August to September.