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Housing Inventory: First signs of seasonal up-tick

Inventory (orange line, right axis) is showing an up-tick in this week’s data. Sellers on the market are subsequently responding with a flattening in the number of homes on the market with price reductions in the last 90-day period (black line, left axis). History tells us that the inventory count hits a trough in January each year, so we may have hit that trough this week. (See our January 2010 webcast.)

Altos 20-City Composite: Active Market Inventory & Seller Price Reductions since 12/15/2009 (weekly observations)

Higher inventory means increased competition among sellers which can lead to downward price pressure. (Remember what we saw in our January 2011 National Housing report with the Price of New Listings falling off a cliff?)

Demand is the mitigating factor here.  If there are enough buyers in the market to absorb the increased inventory, price reductions will be muted.  We saw this in real time during the 2009-10 tax credit years.  More buyers means less pressure on sellers to take price reductions:

Altos 20-City Composite: % of Active Sellers taking Price Reductions in most recent 90-day period (weekly observations)

Here buyer, buyer, buyer… [waving arms furiously]

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