A home enters inventory when it’s listed for sale and exits inventory when the sale closes. Technology sped up the clunky processes in between.
By Wolf Richter for WOLF STREET.
There has been a lot of noise about how the inventory of existing homes in July, at 1.11 million, was the lowest for any July on record. It wasn’t actually the lowest inventory on record; that was in January and February 2022, with 850,000 homes in inventory. (July sales also dropped about 25% from the the last two Julys before the pandemic).
But each one of the last seven Julys – 2017 through 2023 – was the lowest July on record. Inventories have been declining ever since the inventory peak of the housing bubble in July 2007. Of those 16 years, inventories rose year-over-year in only two Julys, in 2010 and 2014.
The chart below shows the inventory each July (red line), according to data from the National Association of Realtors; and “active listings” (green line), according to data from realtor.com.
Inventory tracks homes from the moment they’re listed for sale in the computerized listing system to the moment the status in the system is changed to “Closed,” or when the status is changed to Cancelled or Expired after it failed to sell (homes getting pulled off the market when they fail to sell is another factor the reduces inventory, but isn’t the topic here).
So “inventory” includes homes whose sales haven’t closed yet and are pending, waiting for mortgage approvals, etc. Homes with pending sales are no longer being marketed, but still show in inventory until the sale closes.
Active listings represent the inventory without the homes that have pending sales. These are the homes that are still being actively marketed (the publicly available data of active listings from realtor.com only go back to 2016).
Unlike inventory, active listings rose in July 2022 from July 2021. While they dipped in July 2023 to 646,700, they were still 18% above July 2021:
And here is inventory for every month, according to the National Association of Realtors. Julys are in the tops of the seasonal peaks (historic data via YCharts):
The big reason: technology finally sped up clunky RE processes.
A big reason for those declines in inventory is that “inventory,” the way it is defined, has finally been visited by technology after the Financial Crisis, and technology in RE was taken to the next level during the pandemic.
A home enters inventory when it is initially listed for sale in the MLS, and it exits inventory when the sale closes or when the home is pulled off the market. So the time it takes to do all the processes from marketing the home to getting a mortgage approved, getting inspections done, to shuffling documents around, and closing the sale determine how long a home sits in “inventory.”
Over the past 15 years, the real estate industry digitized. So now when a home is listed, the listing can be seen immediately by a potential buyer 1,000 miles away. In the old days, you had to submit the listing to the local newspaper which would print it in its weekend RE section. Papers made spades of money doing that, now many have gone bankrupt.
All the clunky processes that go on from when a house enters inventory and is being marketed to the public until it exits inventory have been sped up by the internet and digitization.
Zillow, Redfin, realtor.com, and a gazillion other real estate tech firms have sprung up over the years to make the listing itself and all kinds of info about it instantly available to potential buyers. No one has to wait for the paper to print the weekend edition, or whatever.
Within moments of the home getting listed, someone might be watching the video tour, scroll through past listing and sales prices, look at when the listing got pulled and then relisted, etc., look at market data, get estimates of mortgage payments (“get pre-qualified,” the Zillow button says) and apply for down-payment assistance (“check eligibility” the Zillow button says). Info on property taxes, insurance, homeowner association fees, etc. is right there on the smartphone.
Marketing the property has turned into an instant sound-and-light show that people can see while at work, instead of having to wait for the weekend to dig through papers, make phone calls, and worse, go places.
The tech includes video tours of homes that cause people to buy a home without ever setting foot in it. You can get mortgage approvals in hours or days, not weeks. Electronic documents and signing of electronic documents, long a staple in other industries, are finally common in RE. Remote online notarization (RON) is allowed in many states; the RON system makes eClosings possible, where all or most documents are viewed and signed online.
All processes that go into marketing homes and making and closing deals have sped up dramatically. The time that a home sits in inventory includes the time spans of these processes, and these time spans have shriveled. Back then, inventory seemed huge because the processes were clunky and slow with long wait times. But all that has changed. And that’s one big reason why inventory has continued to shrink over the years.
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