Making Sense of Contradictory Statistics in Residential Real Estate

Within 24 hours of one another this week The Wall Street Journal reported that housing inventory was at a 4 year low of 2.19 Million Homes for Sale, while The Miami Herald reported that there is a hidden “shadow inventory” being held by banks of 7.5 Million Homes.

Which is true and what does it mean for luxury home buyers and sellers?

Put simply, both reports are true but overly simplistic and not necessarily relevant to your particular circumstance. Homes currently on the market are in fact being sold at a faster pace than in recent years and therefore the available inventory is dropping, however because of the millions of foreclosures that took place during and following the recession banks are holding properties that they will likely put on the market slowly for the next few years. This fact may or may not have an impact on home values in any particular luxury neighborhood for a number of reasons.

The deepest well of foreclosed properties which make up the shadow inventory and the portion of the market which has seen the greatest difficulty in rebounding are middle income neighborhoods. These were the most likely consumers to have been approved for a loan above their means or accepted ARMs with a reset mortgage rate higher than they could pay. Low income properties are being scooped up in cash by investors and luxury homes have similarly rebounded for 3 reasons: 1) the inventory in this niche wasn’t as large to begin with, 2) high net worth individuals had cash to take advantage of the discounts and 3) upper level incomes are the only ones to have recovered to near to pre collapse levels. Consequently, whether it’s housing or consumer goods, boats, jewelry, clothes etc., two segments of the economy are doing well, Discount (i.e. Walmart) and Luxury (i.e. Tiffany). The people, property and businesses in between are the ones that are still in trouble.

Anthony Williams, Only Way Realty