Jonathan Miller worried about falling inventory

Jonathan Miller

You can count on appraisal executive Jonathan Miller to provide an informed perspective on both the U.S. and local housing markets.

A post of his this week on an abnormally low number of listings in the U.S. was no exception.  (We’re down in Manhattan, too.)

Although others have maintained that declining inventory has been a positive development that was sure to result in stabilizing and then rising prices, Miller contends that the opposite is true.  Says he:

Inventory was clearly not declining because sales were overpowering the amount of listing inventory that was available.

To the optimists, the Miller-Samuel CEO refers to double-digit drops in active inventory from the Baltimore-Washington region west to Boise and south to Broward County in Florida.

Miller attributes the decrease to three phenomena.

A delay in the supply of distressed properties as a result of the foreclosure mess is one.  Second, sellers lacked confidence in the market’s receptivity owing to national and global economic uncertainties.  Although many buyers may have been tempted by falling interest rates, sellers understood that tight credit hindered even motivated buyers to make offers, according to the appraiser.  Third, the Fed’s assurance of continuing low rates has removed any sense of buyer urgency, including that of the sellers who also planned to buy.

In other words, sellers who didn’t have to move just sit and wait.  Yet those who are trading up may not recognize that any “loss” they envision by selling is money they can make up when buying.

I have a couple of quibbles about Miller’s analysis: For one thing, I don’t think he gives sufficient weight to continually lower prices, a situation that discourages sellers from listing their properties.  Also, I suspect that the likely flood of distressed properties into the market this year (which Miller predicts, along with others) can cause prices to slide only farther.

Wisely, he seems to deposit a smidgen of doubt about his thesis that the decline in inventory right now is not a good development.  Acknowledging that the drop in supply “may or may not” be an occurrence that ends quickly, Miller concludes his post with the following statement:

. . . [O]ne thing is clear – weird changes in market behavior happen for a reason – I don’t see declining inventory as a particular sign of strength in the housing market.

As I have written in the past, the problem with much analysis of the housing market either by trained economists or mere amateurs like me is that virtually all of us are guessing about human behavior.  We have little scientific evidence, for whatever that is worth when it comes to economics, about why people do what they do and when they will do it.

But we do have our anecdotal experience and educated assumptions based on what we see in statistics and on the street.  When it comes to such matters, Miller is no slouch.

I think there is plenty of room for concern about what the future holds on Wall Street, in Washington and beyond, but I’m feeling just a little more optimistic, at least about Manhattan, than I did last year.

Tomorrow:  Wish upon a Starr

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201

Malcolm@ServiceYouCanTrust.com
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