ChitownLiving | Chicago Real Estate + Life

There is no better way to get a feel for the bloated housing inventory levels than to stroll around your neighborhood on a Sunday.  I will warn you though, you may suffer whiplash looking at all the open house signs on the street corners.  Despite the high inventory levels, according to a recent New York Times article (free access but login required) by Floyd Norris, National housing inventory may have peaked.  The charts to the left illustrate the trend (Source:  New York Times).  Click chart for larger view.

At the end of August, the latest figures available, there were 4.5 million homes and condos available for sale, more than double the number in late 2001 and up 35 percent from a year earlier. It was the highest figure ever. But as the second chart shows, the year-over-year growth in inventories peaked in May, with a 38 percent rise. To Mr. Rehaut, that is significant. “While pricing, orders and starts may still show negative trends in the near term,” he wrote this week, “we believe inventories — the leading driver of the market’s pullback, on our view, as well as our prior cautious stance — have begun to stabilize and in turn should drive a market recovery.”

What interests me is whether the national trend ties to the local Chicago market.  Few comments on the local inventory levels.  Numbers are available in my September 2006 Market Trends post.

• Inventory levels are at very high levels with just over 12,000 available listings in the markets I monitor.  This is about a 6.6 month supply.
• The number of available listings in relation to the number of listings under contract seems to be cresting.  At the end of September the ratio of available to under contract listings was just over 2.5.  Will have to see if the wave breaks over the next month or so.
• The number of new listings entering the market over the past couple months has been modest, ranging from about 3,600 in August to 3,800 in September.

So we may have reached an inventory peak, so now what?  The big issue here is how long it will take to work through this inventory and how the inventory levels will decrease.  A reduction in inventory levels due to listing cancellations and expirations is not a positive sign.  On the other hand, listings going under contract and reaching closing is a positive thing.  I just calculated some quick stats on closings for all of Chicago. August 2005 vs. September 2005

• August 2005 - 4656 closings, $1,536,407,808
• September 2005 - 4097 closings, $1,366,024,576
• August 2005 vs. September 2005 - Closings were down 12% while dollar volume was down 11%.

August 2006 vs. September 2006 

• August 2006 - 3996 closings, $1,355,318,272
• September 2006 - 3063 closings, $1,047,589,248
• August 2006 vs. September 2006 - Closings were down 23% while dollar volume was down 23%.

September 2005 vs. September 2006

• September 2005 - 4097 closings, $1,366,024,576
• September 2006 - 3063 closings, $1,047,589,248
• Closings were down 25% while dollar volume was down 23%.

Closings are down significantly from September 2005 to 2006 and August to September 2006.  We will have to see if the trend continues or if the inventory is absorbed in a healthy way with increased numbers of contracts and closings.