Inventory levels saw historic lows throughout the first months of 2013, and home sales were “stuck” throughout the spring due to the limited number of homes available to buy. Today, inventory levels are slowly returning to normal conditions.
As seen in the graph above, 5.5 months of inventory signals a normal market. This means that the supply of houses currently for sale would last six months if no new homes were put up for sale. In January, there were as little as 4.2 months worth of inventory, whereas current levels are approaching a healthier five month level. Because of the low mortgage rates and increased consumer confidence, the market is especially hot with many homes selling quickly and above asking price.
Distressed inventory, also known as shadow inventory, has continued to nosedive since the housing market began to recover. Distressed inventory accounts for homes in foreclosure or short sale, where homeowners are underwater on their mortgages. Since January 2012, the percentage of distressed properties has decreased from 35% to 18%, according to the National Association of REALTORS®. Many potential home buyers and investors have continued to buy up distressed property over the last 18 months, and with fewer distressed properties in the market, non-foreclosed homes for sale will continue to bring home prices up.