Where, oh Where, are the Homes for Sale?

The inventory of homes for sale on the Palos Verdes Peninsula is down 46% from August 2011 and represents only a 3 month inventory . A 6 months supply of homes is considered normal in a market in equilibrium. The peak number of months of unsold homes nationally was reached in October 2008 at a 10 month inventory. Pending sales of homes on the Palos Verdes Peninsula at the end of October equals almost half of the current inventory.

What is causing this lack of inventory of homes for sale? Sales have been relatively strong, but not out of the ordinary. It appears that the lack of inventory is due to fewer home owners putting their property on the market for sale. Why this is so is very confusing to me as I see no compelling reason for sellers to be withholding their homes from the market. Now is one of the best times in recent history to sell your home for the following reasons:

1) Interest Rates are at Historical lows, making it easier for buyers to afford to buy a home and also supporting current home price levels. These low interest rates are primarily due to the Federal Reserve’s program of purchasing mortgage backed securities to provide capital to make new loans. With the collapse of the private mortgage backed securites market during the financial crisis, the Federal Reserve has been the primary source of capital to fund new loans. Once the economy begins to improve, and the Federal Reserve stops buying mortgage backed securites to artificially lower interest rates, mortgage rates will increase sharply. This will lead to fewer home buyers able to afford to buy a home and to potentially lower home prices as monthly mortgage payments increase.

2) The lack of competitive homes makes this a great time to be marketing your property for sale. Those items that make a particular home more difficult to sell become less important when the number of homes the homebuyer is looking at decreases.

3) There is current talk in Washington about limiting mortgage interest and property tax deductions in an attempt to raise revenues. There was a recent article in the Wall Street Journal estimating that if the proposed reductions in these deductions are implemented, that home prices may decrease from 5 to 15%.

There therefor seems to be very little incentive for Sellers to be withholding their homes from the market, but yet it appears that they are. Do home sellers still cling to the hope that the markets will improve over the near term thus recovering some of the market value they have seen lost on their homes over the recession?

What do you think?