Foreclosure decline keeping market inventory down

House hunters are still finding bargains in southern New England, but they have a lot less to choose from than they have in years.
Even as prices have started to climb, the number of homes for sale in the Providence area continues to fall from both the exuberant boom years and the five years since the crash.
In Rhode Island, the 5,118 single-family homes on the market in September were the fewest for the month since at least 2006, the last year monthly figures were available, when there were 6,883 listings, according to the Rhode Island Association of Realtors. There were 5,293 houses on the market in September 2012 and 6,416 in September 2011.
But while fewer homes on the market means fewer chances for a commission, real estate agents say tight inventory isn’t necessarily a bad thing.
Inflated inventory during the boom years was echoed after the crash when homes purchased with easy credit returned to the market in the form of short sales and foreclosures. That inventory of distressed properties drove down real estate values across all segments of the market.
“We had such an abundance of properties, we are just now getting back to a balanced market, around a six- or seven-month supply,” said Victoria Doran, president of the Rhode Island Association of Realtors. “We had almost 15 months of inventory and that makes it too much of a buyers’ market. Certainly we would like to see more on the market, but it took months to get balance.”
Although it seems obvious that inventory would be lower than it was during the bubble, the fact that it has continued to fall has surprised some in the industry.
At various times, real estate trackers have offered warnings about a “shadow inventory” of distressed properties being held by lenders, while others have predicted prospective sellers who sat out the recession would list their homes once they saw prices rebound.
Doran expects to see inventory surge next spring.
But even if homeowners do decide to test the market in 2014, inventory could remain low due to continuing declines in foreclosures and short-sale activity.
In fact, the easing of Rhode Island’s foreclosure problem has been the major driver of not only declining inventory but increases in median sale prices.
The Providence metro-area foreclosure rate fell to 2.26 percent of all outstanding mortgages in August, a 0.73 percentage-point decline from the previous year and nearly full percentage point decline from January 2011, according to CoreLogic. That’s meant that the number of properties being dumped on the market by lenders each month has been almost cut in half. There were 146 completed foreclosures in the Providence metro area in October, down from 204 last October and 287 in October 2011, according to RealtyTrac.
Bruce Lane, broker-owner of Williams & Stuart Real Estate in Cranston, attributes the drop in inventory almost entirely to the relative scarcity of distressed sales.
“I have not seen people holding off putting their homes on the market while waiting for prices to rise,” he said. “Because as much as we want prices to rise, interest rates are also going to rise. I would like to see inventory rise a little more, but it is at a healthy level and it will take time to weed out the bank properties.”
One result of lower inventory has been a new willingness among buyers to make offers for distressed properties, and short sales in particular, preventing them from lingering on the market for years.
“Short sales are starting to sell at market value,” said Karl Martone, broker at the Martone Group RE/MAX Properties in North Smithfield. “You are not stealing those anymore. Values are becoming more consistent.”
In many parts of the country, especially areas in the Southwest where there was extensive home construction, inventory remains perplexingly low despite high vacancy rates.
But in the Providence area, like much of New England, both rental and ownership vacancy rates are low, which would suggest there aren’t likely to be a glut of homes being held off the market that will suddenly appear.
According to U.S. Census Bureau statistics released this month, the rental vacancy rate in the Providence area for the third quarter was 6.8 percent, down from 8.5 percent during the same period last year and 8.9 percent in 2010. The vacancy rate for ownership units was 0.8 percent in the third quarter, down from 2.4 percent during the third quarter of 2012.
Nationally 8.3 percent of rentals were vacant during the third quarter and 1.9 percent of ownership units, according to the Census Bureau.
As for what segments of the market are seeing the tightest inventory, Martone said the upper-midrange properties of $400,000 and up have seen the least activity.
“You’d think there were more houses $400,000, $500,000 and up, but here [there] haven’t been as many,” Martone said. “It is a different higher-end market than in the past – anything at $250,000 and down is selling.” •

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