Supply-Side Strategies

The law of supply and demand is so basic to economics that even a kid running a lemonade stand gets the concept: More buyers vying for limited inventory pushes prices up.

But today’s complicated housing market defies easy analysis. Case in point: Nationwide, the inventory of homes for sale fell by 22 percent in March from a year earlier, according to the National Association of Realtors. With the current pace of sales, current inventory is a six-month supply, “about the historical average,” observes Lawrence Yun, the NAR’s economist.

With supply getting back to “normal,” does that mean the housing market has recovered? The short answer, according to experts: “sort of.”

Here, a look at why buyers and sellers should consider supply in their strategy:

Supply Shaped Locally

The NAR figures show a nationwide inventory drop, but some areas are seeing steeper falls, and combined with a good local employment environment, those forces are pushing prices upward, notes Tim Ellis, an analyst for online brokerage Redfin.

For instance, Ellis reports Redfin agents in California’s Bay Area, San Diego, Washington D.C. and other spots are seeing more than one buyer vying for a home in at least half their transactions this year, with the uptick fueled by a robust jobs picture.

Yun adds that some areas hardest hit by the downturn, like Miami, are now invaded by investors, resulting in multiple offers that are pushing up prices from a very low bottom.

Even in metro areas where statistics show prices are still slipping, like Chicago, there are neighborhoods with dwindling supplies, observes Randy Barcella, an appraiser in Orland Park, Ill.

Neighborhoods where owners are struggling to afford their homes and many have put out for sale signs are still seeing prices drag down, but not in spots where supply is limited, Barcella adds.

Smart Sellers Work the Numbers

In the sweet spots where buyers are vying for a limited number of properties, sellers often set a low “teaser” listing prices, and then designate specific dates when they’ll accept offers, explain Brad Le, a Redfin agent in Silicon Valley. Usually, the offer selected is above list price and contains few or no contingencies.

In places where demand hasn’t rebounded, sellers should select an agent who can give them details about the supply of their specific type of home, now as well as in the recent past and what the probable trend is likely to be, says Terry Swanson, broker-owner of Century 21 Results Realty in Atlanta.

It could be that supplies have shrunk, at least temporarily, and sellers who’ve been waiting for an opportune moment to list could take advantage of the lull, he explains.

Indeed, one of the wild cards impact the future supply in some areas is whether banks will drop significant inventories of foreclosed homes in the neighborhood. Foreclosures coming to market “are on of the variables that we must watch closely,” Swanson adds.

Measure the Competition

Yes, multiple offers are wonderful, but not for the disappointed buyers and their agents who present losing bids, says Ellis.

“We’re studying buying strategies,” he adds. “One method is to hire an inspector before [submitting a purchase contract} and then if the buyer is comfortable, they can remove the inspection contingency.”

Cash offers help, with buyers in markets like those in Arizona and Florida losing out to investors with deeper pockets, says Yun.

Ordinary homebuyers can get some advantage by stressing how much they would love living in a particular home. “Nearly all of the offers I see have a letter attached, sometimes with pictures of the buyers,” Le shares.