U.S. Cities With Biggest Housing Inventories

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In the summer of 2005, the Phoenix real estate market was experiencing what local brokers call a "feeding frenzy." With the creation of thousands of new jobs by the month, the sprawling expansion of new construction, and a record number of adjustable loans being taken out, homes were selling fast and selling high. The atmosphere was also ripe for investors seeking quick returns, who bought into the market by the armful.
A year


In the summer of 2005, the Phoenix real estate market was experiencing what local brokers call a "feeding frenzy." With the creation of thousands of new jobs by the month, the sprawling expansion of new construction, and a record number of adjustable loans being taken out, homes were selling fast and selling high. The atmosphere was also ripe for investors seeking quick returns, who bought into the market by the armful.

A year later, the city is feeling the effects of a housing hangover. "I've been here 17 years, and I don't think I've ever seen the inventory levels as high as today," says Robert Rucker of the Arizona Regional Multiple Listing Service. Phoenix's housing inventory has in fact nearly quadrupled over a 12-month period—from 11,656 in July, 2005, to 42,449 homes last July—according to data provided by ZipRealty, a Web-based brokerage firm in Emeryville, Calif., that operates in 19 metro areas around the country.

"All these homes bought by investors to try and get a quick return are having to be sold because of the interest rates and the leverage they put into them," says Pat Lashinsky, ZipRealty's senior vice-president of product strategy. "[Phoenix] is having to go through some market correction to get that right."

OVERHEATED IN MIAMI. As in Phoenix, the slowing of home sales in most major metropolitan markets around the country is yielding record-high housing inventories. Encouraging the local economy, advising sellers to be competitive in their pricing, and offering incentives to new buyers are some of the remedies brokers and Realtor associations are prescribing for the ailment of a surplus.

The factors contributing to a national slowdown in home sales—such as rising interest rates, property taxes, and gas and electric prices—show no sign of letting up in most places. Home prices in Miami, after five consecutive years of double-digit gains, have driven prospective buyers out of the area by the droves—creating a ballooning effect on inventory.

"Not only has the inventory increased threefold, but the amount of buyers on the market is less than half of what it was last year," notes Ron Fillion of Ocean International Realty in Miami. Fillion believes the city will retain a high inventory in proportion to its population for at least the next two years.

STABILITY STRATEGIES. In Las Vegas, where the population is set to grow by about 5,000 to 7,000 residents a month, according to the Greater Las Vegas Association of Realtors (GLVAR), and where each new hotel room built creates two-and-a-half new jobs, the vibrant economy has already helped to stabilize the elevated inventory. ZipRealty has tracked the market as growing by about 150% over the past six months—hitting a record high of 21,662 < ahref="http://realestate.aol.com/real-estate-index">homes for sale in July.

Linda Rheinberger, GLVAR's president, has advocated several strategies to sellers that could help bring the market back to equilibrium. "We're encouraging people who aren't motivated to sell to delist and place a tenant in their property," she says. For those who are determined to sell, Rheinberger advises homeowners to move out and bring in the lifestyle-fabrication expertise of a professional stager.

But the most effective selling catalyst, in Rheinberger's mind, is always the simplest: "Prices are always going to be the main consideration in any marketplace."

HOLDING ON. While price cuts are becoming rampant in most areas of the country, a handful of markets are too stubborn to come down. In the San Francisco Bay Area, inventory has almost doubled in the past year—from 15,826 to 28,621 homes—yet a proportionally small number of sellers have dropped their asking price.

ZipRealty's Price Reduction Index (PRI) tracks the percentage of homes that have reduced their asking price out of the total number of homes on the market. Where a percentage of high-30s is indicative of a near-equilibrium market, San Francisco has a PRI of 28%.

"Many people in the Bay Area feel like they don't have to sell their house and that they have a fair amount of equity in it," says Lashinsky. "They're going to wait, and if they don't get the price they want, they're going to hold on to their home."

At the other end of the spectrum, Boston is already backing down from its peak inventory level of 45,815, recorded in June of this year. Last month, 46% of the homes for sale in Boston were reduced—an aggressive selling trend that will likely begin to show its face in more and more markets around the country.

MacMillan is an intern at BusinessWeek.com in New York.

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