The common wisdom of real estate market is that higher inventory usually means the shifting of bargaining power from sellers to buyers, which means a cooling housing market and brings down price down the road. This cause-and-effect chain has been played out again and again across the nation. However, Elizabeth Rhodes, a Seattle Times business reporter begs to differ:
Why rising inventory isn't having the anticipated effect is hard to pin down, but there are theories.
All revolve around the idea that an increase in the number of for-sale homes isn't necessarily a negative factor that would cause prices to fall.
Theory 1: Last year the number of homes for sale was unusually low, so this year's increase isn't an overabundance that's flooding the market and driving down prices. That's true in close-in Seattle and Eastside neighborhoods where buyer demand is strong enough to handle increased inventory, particularly in the more affordable price ranges.
Theory 2: Move-up buyers, who were reluctant to put their homes on the market last year for fear they wouldn't be able to find a replacement, are doing so now, and that's increasing inventory. Mortgage rates below 7 percent are helping them make the move.
Theory 3: Having heard that sales are slowing, many buyers feel they can take their time. They aren't snapping up houses as fast as they did in 2005 and 2006, so houses are sitting longer on the market.
Theory 4: Inventory is building because overpriced homes no longer can count on playing the "catch-up game."
"Two years ago, if a seller wanted to [insist on a maximum] price, it might sit on the market for a couple of months, then appreciation would catch up and it would sell," Deasy noted. Now they may wait awhile but will eventually drop their price to land a sale.
One has to admire that Seattle's real estate market is still delivering high-single-digit annual appreciation even with the national market as a whole, but is this kind of optimism justified? For the same data set, Seattle Bubble wrote
As of July, there have now been 20 of the past 21 months that have clocked in with YOY decreases in pending sales. Inventory has been increasing YOY for 16 months in a row, and has now been at over 20% YOY for a full year. For some perspective on those numbers, consider that since the peak of Seattle’s market activity in March 2005, inventory has nearly doubled, with a total increase of 90%, while sales have dipped a total of 28%.
Median prices spiked over $10,000 from June—an unusual month-to-month jump. Not since the late ’90s has June to July seen that large of a jump. In the past I’ve been somewhat skeptical of the “low end buyers have stopped buying” explanation for an increasing median in Seattle, but I think we may finally be seeing that effect in these latest price statistics.
I would side with Seattle Bubble
. It is not because I don't own a house in Seattle any more so I will love to see the town becomes more affordable
. It is all about Ecnomics 101: market price is driven by supply and demand, and if the inventory is rising up fast, price correction will follow sooner or later.