Inventory Problems

Inventory Problems

Sellers, like job seekers, can become so listless that they drop out of the market all together. If a person is unemployed and they decide, after a lengthy and tiresome search, that there are no jobs available for them, they might be tempted to drop out of the job market. I don’t really understand how this works, as signaling the end of a search does not seem to signal the end of the cost to live, but that’s another day I suppose. Even so, if those jobless searchers give up on their search for a while, and as such no longer count as unemployed, which in turn makes the unemployment numbers look palatable instead of disastrous, this still doesn’t mean those people wouldn’t take a job if offered one, or at least the right one. Being out of the market doesn’t mean you’re not still in the market, it just means you’re not trying as hard.

The same goes with sellers, owners, really, who have chosen to not sell over the past several years. For many of these sellers, life is not all that wonderful. There have been sellers that have sat on the sidelines, content to watch value peel away from their property with each passing quarter. It’s going to get better, they say. They’re wrong, unless they’ve been counting in decades instead of years. So these sellers who are no longer in the market will slowly, but surely, return to the open market once things appear to be on the mend. They haven’t been counted as sellers over the past several years, but sellers they are.

So today, with the markets on a bit of a mend, sellers are seeing this increased volume and their interest in piqued. They see sales volume on the rise, they hear the breathy fragments of real estate agents, and they feel that it might be time to pull up their shades, sweep the cobwebs out of the corner of each room, and explore the open market. The time must be now, they say. It must be the moment I’ve been waiting for all those years, locked in that house with my cats and my New Yorker subscription, it must finally be the right moment for my house in this market. This is what they think.

What happens now is curious, but should be expected. When sales volume rises, this is the first step towards mending a market. I’ve been telling you this for years, that volume must return first, and only long after the volume has returned will prices reverse their downward movement. I’ve been saying this, and it has been true, as even though volume is increasing it could be argued that individual prices are still dropping. Note I say “individual” prices, because the broad market has moved to where it is going to move to, and now it’s up to individual pockets of weakness to provide the liquidity that the value seeking buyers thirst for.

Today, volume is on the increase, and the worry now is no longer surrounding the buyers but the sellers, or those closeted sellers who are once again returning to the open market. These sellers are poised to damage the Lake Geneva real estate market, just as it has been cleared for take off. All of the momentum of the past few months- momentum that has been growing for two years and has finally reached a relative crescendo- it will be for naught it these sideline sellers return en masse to the broad market. Sellers, not buyers, are other sellers worst nightmare.

See, for a market to improve and for prices to begin to climb we must have reduced inventory. If buyers have little to choose from they will, in theory, coalesce around the prized properties and that will, the theory goes, elevate the value of that home and by default those surrounding it. This is why low inventory can plague markets at times but it can also be the single greatest factor in causing prices to actually increase. Today, at Lake Geneva, inventory is growing. Sales volume is too, but to offset one sold listing with two new listings is not what the doctor ordered. That’s assuming that I’m the doctor and I’m only prescribing that which might heal the markets in the shortest amount of time.

If inventory continues to build, as it has been over the past 45 days, prices do not stand a chance to turn around in the near future. There is much volume on the lakefront now, in fact, I’d say there are more buyers in the market today than there have been since 2006, and in some ways the market today feels more active than it did back then. But these buyers cannot absorb increasing inventory, and when inventory increases in the fall it can weigh heavy over the winter, and winter weight is something we all struggle with. Want to make the Lake Geneva lakefront market even more potent? Reduce the inventory through sales without replacing it with more of the same.

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