California’s excess resale supply (homes for sale) is starting to come back in balance, while Florida’s supply is completely out of whack. At 10.2 months of supply, the U.S. still has 42% more inventory than normal, but supply is nearing historical norms in California, while supply is often 2-3X the norm in Florida.
Driven primarily by great affordability and the additional state tax credit of $10,000, California markets have less than 10 months of supply on the market. Specifically, the most exciting story appears to be San Diego and Orange County, which are maintaining 5 months or less.
Phoenix and Denver also have less than 10 months of supply on the market.
On the other hand, Florida is still hugely oversupplied, with most markets currently maintaining more than 16 months of supply, and some actually suffocating under more than 21 months of supply! Chicago is also weighed down by more than 16 months of supply on the market.
Not Ready to Call a Bottom In California
While California’s supply is returning to norm, its economy is not. The state is virtually broke and will surely be raising taxes and reducing spending. With heavy job losses already occurring, a housing rebound in 2009 is virtually impossible. Job losses will put upward pressure on the months of supply by eliminating potential buyers from the market and adding extra foreclosures. We also believe that there is significant pent-up demand by home sellers, which will also put upward pressure on months of supply.
We are often asked what is the most important variable to track to monitor the housing market. The answer is that there isn’t one, and that what we are paying closest attention to fluctuates over time. Right now, we are focused on job growth and mortgage terms. If job growth returns while mortgage terms and other conditions remain “as is”, home prices are likely to stabilize.