• New listings are lagging last year’s levels and failing to fill the gaping holes in the nation’s inventory.
  • Tight inventories -- and demand that seems impervious to modestly higher rates -- have set the table for sellers.

February is a critical month, a time when the spring market is opening in warmer states and is just weeks away in the upper Midwest and New England.

In a typical year, it’s a month when the best stagers are booked, painters are busy, landscapers are trimming hedges and sodding lawns of homes soon to be listed, and agents are educating new sellers about the realities of the marketplace.

This year may not be so typical.

New listings are lagging last year’s levels and failing the fill the gaping holes in the nation’s inventory. Through February, this year’s deficits range from 6 to 17 percent below last year.

To make matters worse, we are in the third year of a grave and persistent inventory drought.

Tight inventories and demand that seems impervious to modestly higher rates have set the table for sellers, who will feast on the best sellers’ market since in peak of the boom in most markets during the next two months. Will it be enough to turn loose a food of listings from owners?

Time is running out

An analysis of the leading national monthly market demonstrates that most real estate markets in America are in the throes of a three-year inventory drought with no signs of abating. In February, this state of affairs worsened.

New listings, the vital lifeblood of local real estate economies that refresh markets every spring like the sap rising in trees, are falling short of filling inventory deficits that have reached record depths. In fact, new listings are not even equaling last year’s inadequate levels.

With each passing day, inventory deficiencies grow and the odds that a flood of new listings will arrive just in time to meet the demand of spring buyers fades.

Currently, the year-over-year shortfall ranges from 2.6 to 17.9 percent, and deficits are growing. In the two reports that track new listings — national listings sites with current data from the vast majority of MLSs — new listings are trailing last year by 6.4, or 3.48 percent.

All reports emphasize the extent of the drought. On Zillow, inventories have fallen 25 straight months — for the National Association of Realtors’ (NAR) Existing Home Sales report, the run is 21 months long.

Re/Max reports 100 consecutive months of decline. On realtor.com, which makes its historical data available for free, inventories were 23.66 percent greater on February 1, 2014, than on February 1, 2017 — a loss of more than 424,000 listings.

The consequences of inventory drought

This month’s market reports read like a textbook example of what happens when supplies decline in a supply-and-demand economy.

Homes are selling faster; days on market are down from 6 percent to 15 percent from last year. Prices are rising at rates from 4 percent to 8 percent faster than a year ago.

“You don’t have to be an economist to know that when demand is high, and supply is low, prices go up,” commented Zillow’s Svenja Gudell.

Sales fell in February after rising in January, an up-and-down pattern that probably reflects the low level of sales this time of year rather than the inventory situation.

Both Gudell and Re/Max CEO Dave Liniger said sales are already feeling the impact of short supplies. Trulia’s Ralph McLaughlin suggested rising prices in hotter markets may already be putting down payments out of reach for first-time buyers.

NAR’s Lawrence Yun pointed out that new listings are not helping to alleviate the shortage of affordable homes because newly listed properties are being snatched up quickly so far this year, leaving behind minimal choices for buyers trying to reach the market.

What’s causing the drought?

Zillow’s Gudell lists four factors responsible for the drought.

The first is high demand fueled by improving wages and undeterred by slowly rising rates, at least so far. She also blamed inadequate new home construction and negative equity, which still freezes in place many owners who bought their homes at the peak of the boom.

Gudell, McLaughlin and Redfin’s Nela Richardson suggested shortages have been causing gridlock for move-up buyers who are unwilling to list their homes for fear they won’t find a new one.

McLaughlin segmented supplies and prices by three price tiers — starter homes, trade-ups and premium — to show how pressure on prices is at least twice as strong on starter homes as premium-priced ones.

Regional impacts

Redfin reported that Rochester, New York; led the nation in overall inventory decrease, down 42.4 percent since last February, followed by Buffalo, New York (-37.8 percent); Seattle (-35.3 percent); and Omaha, Nebraska (-34.7 percent).

According to Trulia, inventories in Salt Lake City (-69.5 percent); Seattle (66.6%); San Diego (-66.5 percent); and Nashville, Tennessee (-66 percent) have declined most since the first quarter of 2012.

Best seller’s market in a generation?

Homes are selling 6 percent to 9 percent higher than they were a year ago and median prices are 26 percent higher than they were three years ago, according to realtor.com’s records.

Days on market are 6  percent to 15 percent less than a year ago, and 17.4 percent less than three years ago.

Is this the best seller’s market in a generation, or at least since the peak of the boom in 2005-2006?

Or will too many owners hold their cards for another year to see if things get even better for them? March market reports may answer those questions.

Steve Cook is editor and co-publisher of Real Estate Economy Watch. Visit him on LinkedIn and Facebook.

Email Steve Cook.

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