Suddenly Here Comes the Inventory: Homes Listed for Sale Jump amid Price Reductions and Sagging Sales

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The shadow inventory emerges with perfect timing, just as holy-moly mortgage rates and sky-high prices keep buyers away.

“Inventory” in housing means homes listed for sale. Then there’s the shadow inventory – vacant homes that owners want to sell eventually because they have already moved into a new place but want to ride up the surge in home prices all the way, and then at the tippy-top, they’ll sell it to maximize their profits.

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We have seen this during the past 18 months when home prices spiked: people bought a home and moved in, and they moved out of their other home but didn’t sell it, expecting a 10% or 20% or 30% gain in price on a leveraged bet with a much bigger gain on equity. The math makes sense, though it doesn’t always work out, and now it’s starting to be time to put those vacant homes on the market, and here they come, just as home sales are dropping because layers and layers of buyers have been removed from the market by the rising mortgage rates and sky-high prices.

Active listings jumped. In May, the inventory of homes actively listed for sale jumped by 26% from April and is suddenly up by 8% from a year ago, the first year-over-year increase since June 2019, according to the National Association of Realtors today. There were about 38,000 more homes listed for sale in May than a year ago (data via realtor.com):

Active listings jumped for two reasons:

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One, falling sales, as potential buyers left the market due to sky-high home prices and holy-moly mortgage rates. The NAR’s metric of “pending listings” for May, which tracks listings that are in various stages of the sales process, but before the deal closes, dropped by 12.6% year-over-year in May, after the 8.7% drop in April, the ninth month in a row of year-over-year declines:

Reported later in the month, closed sales have also dropped for the ninth month in a row, and the closed sales data for May should be another doozie.

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