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Reading the Tea Leaves of Listing Inventory

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[This week, real estate appraiser, Curbed graph guru and podcaster extraordinaire Jonathan Miller ponders the listing inventory-price per square foot connection.]

This week I thought I’d try to compare the listing inventory trend in the first two months of any given year and see if there was a corresponding change in re-sale price per square foot adjusted for inflation. The thinking is that faster inventory growth means more weakness in price?pretty basic.

I backed out new development from the price trend, since the closing dates for new development units are somewhat of a random event based on when there is a TCO and many sales reflect a meeting of the minds 12 to 18 months earlier.

The percent change of the number of units listed for sale from the end of December to the end of February was analyzed. I went back to 2003 and not earlier, only because I don’t have re-sale versus new development parsed out prior to 2003.
The results seem to make sense (no causation proved here). In a period where inventory growth was negative or modest, prices generally increased, such as in 2004. Conversely, when inventory growth jumped, prices either leveled off or declined.

While inventory growth in 2010 is the highest we’ve tracked since 2001 (when this data was first collected in this format), it's pretty consistent with the prior two years, which were marked by declining or flat pricing. Inventory could rise faster than it did in the prior few years because of the re-sale shadow inventory phenomenon last year?sellers were withdrawing their listings from the market in hopes of returning at a later date when conditions are better.

With the perceptions greatly improved after a more active second half of 2009, I would expect inventory to expand somewhat more than seasonal norms in 2010.
· Manhattan Co-op/Condo Listing Inventory Growth versus Inflation Adjusted Re-sale PPSF [Miller Samuel]
· Three Cents Worth archive [Curbed]