RealEstateEconomyWatch.com

A decline in inventories is normal at this time of the year as real estate markets buckle down for the fall and winter season.  But the 20 percent plus drop in inventories from last year at this time suggests something else is going on.

According to data released last week by Realtor.com, the national inventory of for-sale single family homes, condominiums, townhouses and co-ops) declined 3.27 percent from August and are 20.09 percent lower compared to one year ago.

The inventory picture painted by Realtor.com’s unique database of more than 2.1 million listings tracks a steady six month decline through the early spring and summer.

The inventory draw down, while healthy in times of lackluster demand, may be a response to depressed prices by owners who have the option of waiting until prices improve.  That might be the case in markets thick with second home and resort properties like Miami, Phoenix-Mesa, Orlando and Fort Myers-Cape Coral-which also happen to be the top four markets for year-over-year inventory declines in the Realtor.com report.

The latest RE/MAX monthly survey also found inventories are down by virtually the same percentage over the same time period.  Inventories in the RE/MAX survey have declined steadily, falling in September for the fifteenth month in a row, suggesting again that more than seasonality is at work.  The average inventory of homes-for-sale in the 53 metro areas surveyed dropped 4.8 percent from August and 20.2 percent from September 2010 (virtually the same year-over-year decline reported by Realtor.com), resulting in a 7.7 months supply of homes.

Both Realtor.com and RE/MAX rely on listing data direct from MLSs.  One of the advantages of listing data is that it’s remarkably timely; when listings come and go is tracked virtually to the minute.   Usually listings depart  because there’s a contract or a closed sale, but these days departures also could be owners taking their properties off the market to wait for better times.

Whether owners are pulling listings or simply not listing in the first place, the inventory numbers provide an insight into the psychology of supply and demand at work.  With demand soft in many markets and national average prices several points below last year’s post-tax credit plunge, keeping properties off the market for the near term may be a good idea for everyone concerned. “While such developments can be viewed as encouraging, markets remain fragile and could easily begin to deteriorate with further weakening of the economy or increases in foreclosure rates,” concluded the Realtor.com commentary.