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Inventory Squeeze

April 12, 2002

Demand Far Outstrips Supply In California Housing Markets

By Bridget McCrea
Inman News Features

"Go West, young man, go West" was once very popular advice given to entrepreneurs, gold miners and pioneers who sought the opportunities of the country?s western states.

Most of those who heeded that advice wound up as far west as they could go in the continental United States. California now has a population of 35 million people, adds one new person per minute and is expected to top 50 million by 2025.

Problem is, there aren?t enough homes to go around in the state.

According to the California Association of Realtors in Los Angeles, the unsold inventory index, which measures the number of months needed to deplete the supply of homes on the market at the current sales rate, fell to 3.2 months in February.

A year ago, that inventory level was at four months.

But a more desirable number would be seven to nine months, which would create a market balanced between buyers and sellers, according to C.A.R. President Robert Bailey.

The last time California came close to that number was in early 1999, when the inventory hovered at 4.5 to 6.5 months? supply.

When inventory levels drop below four months and hover close to three, real estate agents start to see more pressure on the overall market and home prices, resulting in far fewer choices for home buyers.

Well-priced homes in the most desirable neighborhoods of Los Angeles are selling within a few days of coming on the market. Some first-weekend open house events are so crowded that eager buyers are unable to find parking spots on the residential streets and once inside are tripping over one another in their efforts to walk through the homes.

At the root of the problem is skyrocketing demand for housing, exacerbated by strong consumer confidence and historically low interest rates and compounded by a dearth of new homes.

"We?re trailing way behind the rest of the country in the creation of new homes," said Bailey. "Inventory is lagging and pressure is building."

Business is good for the California Realtors, according to Bailey, who said C.A.R?s projected sales numbers for the state will make 2002 the best year in the last 30.

But where Realtors are feeling the pinch is in the accelerated speed at which they have to local the right home for each buyer.

"Realtors just don?t have the same opportunity to work with clients and educate them about the marketplace and home-buying process that they?d enjoy in a balanced marketplace," said Bailey.

Agents are predicting that more homes will come on the market in the spring and summer months. If and when that happens, inventory levels will climb and the market will achieve balance.

But if those listings don?t materialize, the situation could worsen.

"If we don?t see a buildup in inventory," Bailey said, "we?ll see continued pressure on pricing and that will hit the affordability index."

Copyright: Inman News Service

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