As the build-up to the spring buying season winds down in a matter of weeks, the inventory picture is shaping up be significantly worse than it was last year—which was one of the tightest in recent years.  A rush of new listings in February and March could brighten the picture, but through January it’s clear that inventories are going starting from a deeper hole than they were a year ago, especially in hotter markets like the Bay Area and Denver.

Unless seller confidence increases soon, the coming months will see prices inflated back by lack of supply and sales depressed by unmet demand. Multi-bid environments will rekindle bubble fears—if not actual bubbles- the most stressed markets.  January saw an  tiny uptick in seller traffic, but not only three points over a year ago. Realtors are reporting seller interest is down in every state except North Dakota, where the market is suffering from low oil prices.

Realtor Seller Traffic was Weak in 49 States in January

                                                        Source: NAR Realtor Confidence Index

Home sales grew 6.7 percent in January from last year, while depleted inventory pushed the median sale price up 7.7 percent to $255,300.  Total inventory fell by 5.6 percent, while the number of new listings inched up 0.5 percent year over year, said the January market report from Redfin, released last week.  Redfin reported a 4.3 percent months supply; 6 months is considered balanced.

“Demand has outpaced the supply of homes for sale since early 2015, when inventory began to drop sharply in many metro areas while home sales rose, growing nationwide by 9.7 percent overall last year while new listings grew by just 5.9 percent,” Redfin said.

Says NAR’s Lawrence Yun: “The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand.  Home prices ascending near or above double-digit appreciation aren’t healthy – especially considering the fact that household income and wages are barely rising.”

NAR reports the gap in demand and supply has led to strong price growth against modest gains in income, making a home purchase increasingly less affordable. The national median existing single-family home price in the fourth quarter of 2015 was $222,700, up 6.9 percent from the fourth quarter of 2014 ($208,400). For all of 2015, an average of 89 percent of measured metro areas saw increasing home prices, up from the averages in 2014 (83 percent) and 2013 (88 percent).

Virtually every other major measure of inventory agrees.

• NAR’s January existing sales report found that total housing inventory at the end of January increased from December by 3.4 percent to 1.82 million existing homes available for sale, but is still 2.2 percent lower than a year ago (1.86 million). Unsold inventory is at a 4.0-month supply at the current sales pace, up slightly from 3.9 months in December 2015.
• Realtor.com was equally gloomy.  Total active listings were down 4 percent from 2015, which in turn was down 8.7 percent from 2014—a 12.7% decline in homes for sale in just two years.
• REMax reported that the inventory of homes for sale remains very tight in many metros across the country, at a level that is 14.7% lower than one year ago. At the rate of home sales in January, the national months supply of inventory was 4.6, down from 5.2 one year ago.  Five metros had a supply of 2 months or less, including Denver, CO 1.2, San Francisco 1.4, Seattle 1.5, Portland, OR 1.7 and Dallas-Ft. Worth, TX 2.0.

On a regional basis, the data is equally unsettling.

California.  The California Association of Realtors reported that in January the state-wide months of supply fell to 4.3 months from 4.9 in 2015.  The Bay Area has only a 2.4 months of supply and active listing are down 7 percent and 8 percent in the Central Valley.

Washington State. Depleted inventory is contributing to “overwhelming” traffic at open houses, shifts in strategies for both buyers and sellers, and escalating prices, according to officials with the Northwest Multiple Listing Service.  Dick Beeson, a former chairman of the NWMLS board, said the lack of inventory in almost every county is, “without question, a 2016 game changer.” He described traffic at open houses as sometimes simply overwhelming. “There haven’t been any battle royals on the premises, but it could happen any day now,” quipped Beeson, the principal managing broker at RE/MAX Professionals in Tacoma.

MidAtlantic. Active listings in January were down 3.84 percent from a year ago and new listings were down 9.61 percent from January 2015 though up 4.4 percent from February.  Months supply was down -15.1 percent year over year.  Active listings for entru level homes in the $200,000-$300,000 were down 7.9 percent from 2015 and months supply declined by 19.9 percent.

Denver, where prices rose 11 percent in 2015. active listings are up only 1 percent over 2015 in January.  New listings rose 2 percent year over year.

“A true conundrum exists,” said George Moorhead, designated broker at Bentley Properties in Washington State in a news release from the NWMLS. “For sellers there is no better time in history, but the concern we hear is there’s no place to move.” He said since most sellers are looking to move up to larger homes, the ripple effect is “more like a tidal wave as it rolls back to the first-time buyers in the market who are quickly getting priced out of the possibility of purchasing a home.”