Some claim that we need to see inventory over 1.4 to 1.8M homes to become more balanced. What if our historical concept of what an acceptable inventory level number is outdated? Are other factors making the inventory seem much lower than in previous decades?
My thesis is that technological changes and consumer adoption of them in the last half-decade have shortened the #realestate cycle and therefore impacted the ability of #homeinventory to build up as in previous decades. Simply put, the time it takes for a buyer to go from wanting to buy to closing has shortened. Technology has changed the length of the cycle on the buying side but has had little impact on the creation of inventory. The imbalance has created falling inventory levels through a faster buyer cycle and distorted inventory levels.
Demand for homes, even if low, is moving faster through the real estate cycle than in previous decades and this is impacting the ability for inventory to build up.
How has technology impacted the cycle?
(1) 22 years ago when I first started looking for my first home I waited for the Sunday paper edition to browse open houses and lists of homes for sale. I hired an agent that I sat down with and looked at a binder with printouts (would be lucky to have 1 photo or even half the information). Today I can pull out my phone, browse every home listed coast to coast, and have more information at my fingertip today than what HUD or Census Bureau could access in 2010. The ease of access and breadth of data has dramatically increased the efficiency of buyers and real estate agents.
(2) 25 years ago went I went to get a loan, I had to meet a loan officer and receive folders with hundreds of pages for a loan application. Had to go get paper documents from HR, bank, accountant, and old files. Today you go online and apply/upload digital documents in minutes and receive an answer in seconds.
(3) 25 years ago it took me 3 months to close on a home. Title searches were paper or microfiche, the appraisers took a week or two to come back, and underwriting even longer. Today a closing can be done in days with cash and 15 to 45 days with a loan.
How long it takes the same number of buyers today versus 25, 15, or even 5 years ago to go through the full cycle is dramatically shorter. From qualifying, searching, deciding, and making the offer, to closing.
Technology has shortened the cycle of buyers, accelerating the sales cycle, and reducing the closing time that impacts how long pending homes are counted.
(4) We can also add how technology has impacted the speed and accuracy of inventory data collection. That impacts inventory levels to the downside.
What we consider low inventory today might be the equivalent of a much higher number 25, 15, or 5 years ago if adjusted to technological improvements and a shortened cycle.
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