It’s no secret the chronic inventory shortage that began three years ago is a ball-and-chain that’s crippling sales and keeping the recovery from achieving its potential.

Evidence:

• Just as the 2014 market opened in March, Realtors reported a severe inventory shortage in most areas, especially for properties in the lower price range and for those that are move-in ready.
• In May, NAR’s Chief Economist Lawrence Yun warned that until inventory constraints improve, the country’s large pent-up demand for home sales can’t be met,
• By June in the lowest-priced third of homes for sale, the inventory homes on the market fell year-over-year in 28 of the nation’s 35 largest metro areas.
• At the annual meeting of the National Association of Real Estate Editors, Frank Nothaft of CoreLogic and Stan Humphries of Zillow named as a primary factor a persistent lack of equity four years into the housing recovery for a large section of U.S. home owners. “One in three homeowners either has negative equity or very little equity in their homes,” Humphries said.

As the year winds down, listing inventory trended down 2 percent over October and continued to move slower per normal seasonal patterns, with most markets entering Christmas mode in October. “However, inventory still ended up moving faster than this time last year. The median age of inventory ended at 84 days, which is up 4 percent from October but remains down 9 percent year-over-year,” said Realtor.com Chief Economist Jonathan Smoke.

That’s the good news, all of it. Here’s the latest bad news:

Something is wrong with existing home sales.  Some 447,000 existing-homes were sold in October while new home sales totaled 41,000.  These raw counts represent a 5 percent loss for existing-home sales from one month prior while new home sales increased 21 percent.  What was the trend in the recent years?  Sales from September to October increased by 3 percent on average in the prior three years for existing-homes and 5 percent for new homes.  So this year, existing-homes underperformed compared to their recent norm while new home sales outperformed.

Sellers don’t want to sell next year. The challenge of housing affordability coupled with tight supply may be preventing overall housing sentiment from gaining momentum as income growth isn’t keeping pace with the cost of housing. Fannie Mae’s November 2015 Home Purchase Sentiment Index (HPSI) decreased 2.4 percentage points to 80.8 in November. Most notably, the HPSI Household Income and “Good Time to Sell” and components decreased 5 and 6 points on net, respectively, while “Good Time to Buy” rose 1 point on net. Only 38 percent believe home prices will rise next year.  Concern about job loss remains minimal, with the percentage of respondents who are unconcerned about losing their job remaining relatively flat in November at 84 percent. Overall, the HPSI is down 0.2 points since this time last year.

California inventories have been chronically low.

Is California a bellwether?  Though the net cash gain to sellers has risen to $120,000 apiece, highest since 2007, California owners are not selling.  The California Association of Realtors cites low equity levels, affordability barriers facing move up buyers and low levels of new construction for its chronic inventory shortages which are worse in Bay Area and Coastal hot spots. CAR hopes that investors who purchased bargain properties during the housing depression will be enticed by the 5.1 percent increase in 2014 California prices to cash in on their rentals. Even though residential vacancy rates are under3 percent and rents are soaring.

Or is Seattle a foretaste of 2016?  Washington State Real estate professionals last Friday warned home buyers of “dangerously low inventories” of homes for sale as shortages drove prices significantly higher throughout the Puget Sound area in November. Median home and condominium prices in Pierce County rose from $227,000 in November 2014 to $245,000 last month. In King County, the home market was similar. The median price of homes and condominiums is now $432,000 in King County. That’s $33,000 higher than at the end of November last year. The inventory of homes and condos on the King County market fell by 37 percent in November, while Pierce County’s inventory dropped by 22.16 percent that same month.

All we need to do is wait four months to find out.