Job seekers who give up looking for employment are not counted as unemployed. They become invisible to the statisticians, but when the job picture improves, as it has in recent months, they flood employment lines and have a huge, unforeseen impact on unemployment rates.
Likewise, sellers who take their homes off the market create an invisible supply of properties that might play a big role In boosting inventories when better prices encourage sellers to put them back on the market.
The dramatic drawdown in inventories in most markets over the past year has led some to wonder whether a sizeable volume of properties will be listed for sale at the first sign of price recovery, possibly killing or dampening price appreciation (See Are Sellers Withdrawing?).
Tallahassee broker Joe Manausa made a convincing case for the "Forgotten Inventory," as he calls it, in a post last week on Active Rain, a site popular with real estate professionals.
"Would you be surprised/shocked to discover that the homes listed for sale in the MLS only represents about 20 percent of the real inventory of homes that need to be sold?" he wrote.
"You might never have thought about it, but there have been a lot of homes that failed to sell during the housing correction, and those that remain unlisted and unsold are a group that I call the Forgotten Real Estate Inventory. It is the growing group of homeowners who have given up hope of selling their home, but they still want to move."
The number of homeowners who delayed selling their home because of the real estate market (17.5%) has not grown in the past 18 months but actually declined slightly (-1.7%), which suggests the pending supply of 'visible' homes is showing signs of stabilization. However, more homeowners ages 35 to 49 (22%) and those making $40,000-$49,000 a year (21%) said they've delayed selling their home in the past year as compared to other respondents. This may indicate growing families in need of more space are having a difficult time moving up as a result of today's market conditions.
In fact, the numbers potential listings owned by frustrated home sellers may be as forgotten as some believe, nor quite as large. A survey by Move, Inc. last November found that the number of homeowners who have delayed selling their home because of the real estate market had not grown in the previous 18 months—a period that included increases in sales and prices stimulated by the federal tax credit— but actually declined slightly. The Move stidy found that some 17.5 percent of owners today say they have delayed selling their homes because of the real estate market where they live compared to 19.3 percent in March 2010. However., that inventory is still sizable and close to Manausa's estimate.
On the other hand, Milton Ezrat, senior economist and market strategist for Lord Abbett financial advisors, had a more aggressive estimate of the invisible inventory. He estimates the shadow inventory, in which he includes homes held off the market by their owners waiting for better prices, to be double the "official" visible inventory reported by the National Association of Realtors. Visible and invisible inventories together constitute about an18 to 24 months' supply, even at today's diminished "official" inventories, he estimates.
Manausa believes is Forgotten Inventory is mostly on the high end of this price spectrum, but the Move study found the largest demographic to be moistly owned by middle-aged, middle income families. More homeowners ages 35 to 49 (22 percent) and those making $40,000-$49,000 a year (21 percent) said they've delayed selling their home in the past year as compared to other age groups. which may indicate growing families in need of more space are having a difficult time moving up as a result of today's market conditions.
Just how much of a price increase will it take to encourage sellers to re-list their homes? Far more than most markets will see this year, if projections prove true. In fact, Move found that today's frustrated homeowners are less tempted to sell in response to incremental price increases than they were in 2009. Price increases in June 2009 of 20 percent or less would have motivated 61.6 percent of homeowners to sell. Now, however, price increases of 20 percent of less would motivate 55.4 percent. Based on the survey, a 5 percent increase in prices today would motivate only 11.7 percent of owners to sell their homes. The decline in pending price-motivated inventory suggests many owners may have sold their homes when the tax credit temporarily raised prices in 2010.