Why the declines in inventory?

Several recent reports have noted declining inventory in listed homes for sale in the Denver area. A recent LA Times article has some good explanation of what seems to be driving some fairly large declines in inventory nationwide:

The inventory problem has been exacerbated by the plunge in home prices since the go-go years. Many people who bought at the top of the cycle are so deeply underwater, they can't get the price they need to sell and are therefore not bothering to put their homes on the market.

"We know negative equity holds back home sales, but it also holds back the listing of sales," said Sam Khater, an economist with CoreLogic, a company that tracks the mortgage market. "Today it is holding the market back."

Although negative equity is keeping some potential listings off the market, we should note that most home in Colorado have positive equity. According to the most recent Corelogic report on home equity, 21 percent of homes with mortgages in Colorado are underwater. Zillow says it's 29 percent.

The proportion of loans that are underwater, in the Corelogic numbers, have been pretty stable at 19-21 percent for several years.

So, negative equity is certainly pushing down inventory at the LAT article notes, but there are also larger demographic issues pushing more home sales also right now which also speak to a tighter real estate market in general. In spite of the 2008-2009 recession and continued sluggish job growth, Colorado appears to still be forming more than 20,000 households each year, while far fewer than 20,000 housing units are constructed each year.