Increasing Supply Will Slow Market Rebound

By
Real Estate Agent with Exit Realty Metro

 

Discussion about real estate markets usually tends to focus on prices. And the Twin Cities market has had encouraging price news this year. After three and one half years of declining prices, we've now had three consecutive months of increases in the median price compared to a year ago. But price trends usually follow supply/demand trends, and while most of us have been talking about prices, an important supply development has taken place.

 

An important factor leading to the three years of price declines was a multi-year build up in supply of houses for sale. The supply peaked at an unhealthy level in the spring of 2008 and then started a steady decline. Price declines followed and hit their lowest point of the cycle in early 2009. But as supply declined and demand increased during 2009, price declines became smaller, until this year and the stabilization that we now see.

 

The new development is that in three short months, the two year trend of declining supply has stopped. We now are at a higher supply of houses for sale than a year ago. This is a predictable event, since sellers had been discouraged by poor market conditions and have now been given new hope by the positive price news. New listings are coming on the market at the highest rate since 2007. The increased activity comes from traditional sellers, as opposed to bank owned foreclosures, and is most noticeable in the middle price ranges, from about $120,000 to $250,000.

 

Markets always change and adapt, and there exists a pent-up desire among many owners to sell, along with many more foreclosures to work through the system. For these reasons, our housing supply is not likely to fall to levels that will put much upward pressure on prices. Now that we've reached a reasonable supply/demand balance and price stability, we may not have significant market movement, up or down, for a while. We will be keeping a close eye on supply/demand trends to see how sellers and buyers respond to the upcoming expiration of the federal homebuyer tax credit.

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Rainmaker
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Michael J. Perry
RE/MAX Associates of Lancaster, PA. - Lancaster, PA
Lancaster Relo Specialist

Supply and Demand have huge impact in prices !!!!!!! Just remember 2005 when buyers were paying 120% of market value just to win the multi offer !!!

April 27, 2010 12:27 PM #1
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Pat Paulson

Realtor Minneapolis, Minnesota
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