One of the most important indicators that agents look at in assessing whether we are getting near the bottom of the housing price decline in Phoenix is the inventory of homes for sale and how long it will take for the market to absorb that amount of inventory at the current sales pace. As sales have picked up over the last several months due to increased sales of foreclosed homes, realtors have expressed optimism that this will start to chip away at the inventory level to get back to a normal amount of inventory (generally five months of inventory, give or take).
The one fear I have expressed is that banks that have foreclosed on homes aren't releasing those homes back onto the market right away and therefore have created a shadow inventory which is generally not accounted for in the MLS statistics that realtors generally rely on.
According to the Republic, one real estate analyst in Phoenix has attempted to quantify this shadow inventory number and has estimated that there are an additional 16,000 bank-owned homes that have yet to be released onto the market. He also figures an additional 5,000 builder-owned spec homes and another 5,000 for-sale-by-owner homes that do not show up in the MLS inventory of listings. He calculated that this brings the total inventory level to 86,000 homes in Phoenix metro and indicates a 13 month inventory based on a sales rate of about 80,000 homes per year. And with foreclosure rates continuing steadily at an historically high pace, this shadow inventory will stay high for the foreseeable future.
In fact, one of the fears I have is that the foreclosure rate will actually accelerate through 2009 as more and more Arizonans decide to walk away from their homes due to being tens or hundreds of thousands of dollars underwater. Hopefully the new housing plan will at least help stem the tide of foreclosures a bit.
In any event, the analyst's calculations splash a little cold water on the view that we are working our way towards a normal inventory level by the end of 2009. The question this analysis begs, of course, is whether this also means we won't find a bottom to our housing prices this year.
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