Shadow Inventory Threatens Housing Market Stability

The bad news for the US housing market: despite strong resales in April, the country had about 8.2 months of inventory. For real house prices to stay stable, inventories need to be in the four to six month range, and because inflation is nearly non-existent for the moment, downward pressure on real prices means downward pressure on nominal prices as well. This could be a problem for a housing market that had relied so heavily on FHA loans, which have lax downpayment requirements.

Things here in California are better:

The data come from CAR. Inventory under $500K is pretty thin, meaning that even if there is a shadow inventory that comes on line, California should be able to avoid much in the way of further price declines. Just as interesting to me is that while the $750K+ inventory is still pretty large, it has shrunk pretty dramatically. I actually wonder how these houses are getting financed–are there that many affluent buyers with cash? When I talk with lenders, they are telling me that to get a decent rate at $1 million+, buyers need at least 25 percent down, and sometimes more.

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