America's big, fat housing inventory

By Maya Roney

updated 4:15 p.m. ET Oct. 30, 2007

Houston, you have a problem — with housing inventory. And as the number of homes for sale in the country continues to creep upward thanks to waning demand, many other major U.S. cities are dealing with the same issue.

At the current existing-home sales rate of 5.04 million units a year, it would take a full 10.5 months to sell the 4.4 million existing homes now on the market, according to data released by the National Association of Realtors (NAR) on Oct. 24. The supply of existing single-family homes was at 10.2 months in September—the highest since February, 1988. Compare that with the height of the housing boom in January, 2005, when it reached a record low 3.6 months.

Tighter lending standards, which are dampening sales, aren't helping housing inventories, though the NAR thinks mortgage availability is starting to improve. "Once the pent-up demand begins to move, we'll see housing supplies begin to ease and then prices will edge up," said NAR Senior Economist Lawrence Yun in a statement issued Oct. 24.

Others aren't so optimistic. Home prices are still falling — the national medium home price is down 4.2% from a year ago, to $211,700, according to the NAR — a sure sign that demand is weak. "With prices remaining stubborn, inventories will remain relatively high," says Jonathan Smoke, president of housing market consulting firm Rating Insights.

L.A. and environs
The housing supply is particularly bloated in Los Angeles, Chicago, and Miami — the top three on our list of the cities with the biggest housing inventories based on data from San Francisco brokerage ZipRealty (ZIPR). Tampa, Phoenix, Washington, Dallas, Boston, Sacramento, and Houston form the rest of the top 10. ZipRealty pulls inventory data — the same data available to Realtors — from multiple listing services in different metropolitan areas.

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More than 100,000 homes sit on the market in the Los Angeles area, giving it the country's biggest housing inventory, up 21% from last year. And sellers are cutting prices to unload their homes — nearly half of all currently listed homes in L.A. have reduced prices, whether they've been on the market for a few weeks or for months.

The Los Angeles housing market offers "a couple different stories," says ZipRealty Chief Executive Pat Lashinsky: Although the beach city real estate markets are faring well, poor sales in valley cities including Riverside and San Bernardino are pushing up the inventory levels for the total area, Lashinsky says. Prices of homes sold were up 2.9% in the second quarter of this year in the Los Angeles-Long Beach-Santa Ana metropolitan area, while they fell 0.3% in Riverside-San Bernardino-Ontario, according to the NAR. ZipRealty says its metropolitan area definitions may include some zip codes, such as San Bernardino and Riverside, that are considered recognizable to residents as being part of a certain metro area.

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