The Pending Supply

Perhaps you’ve heard of the pending demand for real estate-prospective buyers who have postponed taking action until they perceive conditions have optimized. There’s also a pending supply of real estate and it’s large enough to have a serious impact on the housing markets if a recent study is correct.

Since the real estate markets went south in 2006, owners who can afford to wait to sell have been doing just that. Unlike job relocators or foreclosure victims, these are people who have a choice, and many have chosen to delay lifestyle changes because of the market. They see no reason to list their properties when values have dropped a third and the months’ supply is in double digits. No doubt a significant percentage of prospective sellers are underwater on their mortgages and are waiting for the promise of positive equity before they sell.

Intuitively, we have known this pending supply of properties was out there, but no one has known how large it might be-until now. Its size is determined in part by how high prices might rise. Having waited many months, it makes sense that most owners would not sell at the first blush of price stabilization but would wait until they stand a chance of getting what they think their home is worth.

A recent national survey looked at this issue and produced what may be the first data that measures the size of the pending supply. It found that 10.7 percent of the nation’s 75 million homeowners have chosen not to sell at current market prices. That’s a huge number, 8 million homes, or about a two year-supply.

However, these properties won’t come on the market all at once. There is a dynamic relationship between the listing of these properties and prices. They will list in waves as prices rise to levels sellers find attractive. In the current market, they will have to wait many more months to see those kinds of increases. Many will lose patience and sell at a loss. Other owners will wish they could make a chance and will quietly enter the ranks of the pending supply

If and when home prices eventually rise by 5 percent, the survey found that 31.3 percent or 2.5 million owners will put their homes on the market. Should prices rise 10 percent, an additional 9.6 percent would sell, adding 760,000 more homes to the inventory. At 15 percent, 20.7 percent more would sell, representing 1.6 million homes. That’s a total of about 5 million homes that would to on the market at 1increases of 5 percent or less. It would take a rise in prices of 20 percent or more to get most of the remaining sellers-28.4 percent or 2.27 million homes-to sell. Ten percent of owners said that either wouldn’t sell at any price or didn’t respond to the question.

Perception is as important as reality when it comes to anticipating what owners might do. Zillow has sponsored some interesting research and recently found that most homeowners – 74 percent – believe their home will not decline in value in the coming six months, effectively calling a bottom to their own home’s housing slide. One in four homeowners (27 percent),in fact, think their home’s value will increase in the next six months, while nearly half (47 percent) believe their home’s value will remain the same. Homeowners were optimistic when it came to predicting home values in their local markets. About two-thirds of homeowners believe home values in their local markets will increase (26 percent) or stay the same (37 percent) over the next six months. Thirty-seven percent believe home values will decrease.
The reason most owners sell is space related; either they want more or less. The second greatest reason is a change of lifestyle-retirement, divorce, starting a family. What sacrifices are American families making because they can sell their homes? Are young families renting longer than they would like? Are retired couples holding on the family home? Are children making do with bunk beds and are divorced couples drawing lines on the living floor so that they can continue to live in the same space until they can afford to sell? Is the real estate crisis warping the way we live?

The good news is that the owners of the pending supply are prospective buyers themselves and their entry into the market will create demand for many of the houses other pent up supply owners are selling. Their income exceeds $50,000 and most are over 35. These are “move-up” buyers, most of whom will use proceeds from their sales to buy new homes.

The pending supply hangs over the market like a shadow. In light of size found in this survey and its potential impact on the market place, we know very little about the pending supply. We need to understand its composition nationally and locally, and track it on an ongoing basis. We need to understand better how owners perceive their markets and what will motivate them to sell-and to buy.

As we look forward to price stabilization and improved prices, should we fear the pending supply as a damper on the market or welcome it as the first step in the process to free millions of move-up buyers to buy mid to higher-end properties?

2 Comments For This Post

  1. Bev Willard Says:

    Excellent discussion of the pent-up desire to sell. Looks like prices will stay low for a year or more. However, it IS a buyers’ market. Now’s the time to start looking for that rental property you’ve always wanted, upgrade OR downsize to the home you need right now, start the loan process.

    I work in real estate in Stockton, CA. Our local Notices of Default are skyrocketing. However, the bank lienholders are more willing than ever to agree to a short sale rather than foreclosing. So, distressed owners call their bank-lender to submit paperwork for a shortsale. This takes longer, of course, but seems to be far less stressful for the sellers. Many folks arrange for a rental, then move out of the property before it actually sells. That way they’re settled and ready to move on. Ive completed short-sales recently and learned the process is becoming easier.

  2. Steve Cook Says:


    Thanks for your kind words. That REOs and short sales are not keeping up with defaults has caused a great deal of speculation as to whether a “shadow” inventory of foreclosures, in addition to the pending supply discussed in the article above, will continue to depress values for the foreseeable future. One factor that has recentlyh come to light in a study by the Boston Federal Reserve found a “cure rate” of 30 percent among defaulters. In other words, nearly one third of those delinquent 60 days or more manage to become current without losing their homesd or modifying their loans. That might explain for some of the difference we are seeing betwem defaulting borrowers and foreclosed properties.

Leave a Reply