Rising Inventory of Unsold Homes Is Likely to Put Pressure on Prices

Home inventories increased 4.7% in August from July in 18 metropolitan areas, likely putting more downward pressure on prices. The biggest increases - 16% in the Dallas area and 13% in Seattle - came in markets that have been relatively strong recently.
By: James R. Hagerty: The Wall Street Journal Online
A continued rise in inventories of unsold homes in August is likely to put more downward pressure on home prices in parts of the U.S.

Inventories of homes in 18 large metropolitan areas across the country expanded by 4.7% in August from a month earlier, according to data compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The data are based on single-family homes and condos included in local multiple-listing services of homes for sale.

The biggest increases - 16% in the Dallas area and 13% in Seattle - came in markets that have been relatively strong recently. A sharp rise in inventories in those areas is likely to help restrain price increases. Other sizable increases came in Orlando, Fla. (8%), San Francisco (6.1%) and Miami (5.6%).

Of the 18 metro areas, only two showed lower inventories. Boston was down 1.5% and Washington, D.C., 1.6%. Prices have declined modestly in both areas over the past year. For instance, the median home price in the northern Virginia suburbs of Washington was $459,000 in August, down 8% from a year earlier, according to Metropolitan Regional Information Systems Inc., a data-tracking firm in Rockville, Md. Such price declines are likely causing some people who can't get the price they want to take their homes off the market and wait for a recovery.

Home sales have plunged over the past year in many areas where prices had soared over the preceding five years, notably in California, Florida, Arizona, Massachusetts and the Washington, D.C., area. Many potential buyers are waiting for prices to come down further. The persistent weakness in these markets has prompted many housing experts to say prices will have to decline more to revive sales.

Sellers gradually seem to be realizing that they will have to lower prices, says Patrick Lashinsky, a senior vice president at ZipRealty. "There's finally some realism getting into the picture."

Ivy Zelman, a housing analyst at Credit Suisse Group in Cleveland, estimates that prices of newly built homes in San Diego, Sacramento, Calif., Phoenix, northern Virginia and southwest Florida already are down as much as 10% to 15% from a year ago. That estimate includes "concessions" from builders, such as upgraded kitchens or help with closing costs, which are disguised price cuts. But Ms. Zelman still sees more price declines ahead. "We believe that the housing market is still in the early innings of a hard landing that will likely take several years to develop," she says.

Even the National Association of Realtors, normally very bullish on home prices, now predicts a drop in median prices for the nation as a whole. David Lereah, chief economist for the Realtors, forecasts that prices will decline modestly in the next few months. After that dip, he says, prices are likely to resume rising, but at a slower-than-normal rate.