We recently released out Local Market Watch Reports and while there are many things to be happy about (rising prices, lower foreclosure rates, etc.), we now have an inventory problem. I guess in the grand scheme this is one of the better problems to have, but it’s a problem nonetheless.

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Florida Association of REALTORS graph showing decline of inventory since 2009

We track “Months of Supply” for 22 market segments including condos and single family homes in Northeast Broward County. The average supply right now is about 5.5 months with some areas as low as 2.5 months of supply. In many parts of the country 6 months of supply is considered equilibrium, anything more is a buyer’s market, and anything less is a seller’s market. I would argue that here in South Florida that equilibrium is higher mostly because of the large number of second homes. Basically, many property owners don’t have to sell their vacation homes, so we tend to carry a little extra “over-priced inventory”. Bottom line, if you ask any REALTOR┬« or home buyer about inventory you will sense their frustration right away.

So, what can we do about it? We keep hearing about shadow inventory at the banks, but it is unlikely this will be released in any bulk fashion that would affect inventory levels. Demand is here to stay. Interest rates might go up more, but not enough to scare away most buyers. Investors (individual and institutional) seem to have an insatiable hunger so don’t expect that demand to dry up. New construction is not likely to help us either, at least not any time soon. Not only is there very little construction in Broward currently, but we will never see anything significant due to our lack of land (unless we want to build houses on stilts in the Everglades).

The problem is probably going to get worse before it gets better, but it will get better. As values continue to rise and more owners emerge from being “underwater” more inventory should hit the market. Of course many property owners are seeing the green and want to hold out for more money. How do you know when it’s time to sell? You can start by reading my blog Is Now The Time To Sell?

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