It's The Inventory Stupid!

Housing inventory has been steadily increasing across the US. Nationally, the inventory of existing homes for sale has increased by 39.1% year over year from 2,678,000 in June 2005 to 3,725,000 in June 2006 according to data published by the National association of Realtors.

In the bubble markets, inventory has increased at an even faster pace then the national picture over the past year.

In San Diego County, housing inventory started off at 13,916 on January 1st 2006 and has risen by a full 67% and was 23,259 as of July 24th (Zip Realty, Bubble Markets Inventory Tracking).

In Los Angelos County, housing inventory started off at 24,463 on January 2nd 2006 and has risen by a full 82% and was 44,757 as of July 24th (Zip Realty, Bubble Markets Inventory Tracking).

In Sacramento Metro area, housing inventory started off at 9,513 on January 2nd 2006 and has risen by a full 80% and was 17,200 as of July 24th (Zip Realty, Bubble Markets Inventory Tracking).

In the Phoenix metro area, inventory spiked from 10,748 on 7/20/05 to 51,557 on 7/5/06 according ZipRealty and Bubble Markets Tracking Inventory. This represents an incredible increase of 379% year over year.

In Loudoun County (DC suburbs), see image to the left, the inventory has exploded going from ~1600 to ~4600 active listings from June 2005 to June 2006.

In Northern Virginia, a part of the Washington DC metro area, the number of active listings was 4061 in June 2005, which increased by 197% to 12,096 in June 2006 (MRIS).

In the Orlando area, inventory had exploded from 13,533 on January 7th, 2006 to 23,773 on July 21st 2006 (HousingTracker).

As Jim A wrote in a comments section of the The Housing Bubble Blog:

It'’s all about the inventory, stupid. Back when there was no inventory to speak of, say the '‘03-'’04 timeframe people in the market to buy a house would have the repeated experience of having houses that they looked at go under contract before they could decide to buy or not. Low inventories create a "“buy now or it's gone"” frenzied atmosphere.

But prices have risen far above the cost of construction, so that builders have put huge inventories of new homes (especially condos)on the market. With these large inventories, buyers don't have to jump immediately just because a nice house is for sale. They can take their time, if one house sells, there are plenty of others on the market to choose from. They'’re no longer pressured to meet the sellers price immediately or lose the chance at the house. They can offer less and see how desparate the seller is. This is why the idea that we have reached a new plateau of prices where forever in the future people will pay a higher percentage of their income on housing is so absurd.

The dramatically increasing number of housing units for sale in the bubble markets has and will continue to change the housing market. Meanwhile, demand is also declining albeit at a much slower rate then the increase in inventory. The dramatic increase in supply, coupled with the moderate decrease in demand is causing price declines in most bubble markets. As summer turns into fall this year, the declining housing market will become even more pronounced in the bubble markets.