A wonky look at Savannah metro area housing market in April

I’ve been writing a lot less about the housing market in my City Talk columns since Adam Van Brimmer made the jump from sports writing to business writing.

It’s been sort of a relief not to feel obligated to wade through each month’s data. Adam’s piece about April sales and listings for the Savannah metro area can be found here.

The headline describes a leveling off, but the data is ugly, ugly, ugly. Compared to other months, it looks OK. But those other months were ugly too.

In April, there was an available metro inventory of 4,480 homes and 324 sales. That’s about 13.8 months of inventory — approximately 2.5 times the amount of inventory we’d see in a healthy market historically. For the most part, inventories are higher in higher-priced areas, but they are too high by historical standards everywhere.

Yes, there is one bright spot in the data: active listings are down significantly from 2010. But that’s in part due to last year’s rush to list properties before the expiration of the tax credit, in part due to sellers’ beliefs inn 2010 that the market was turning and they could likely sell, and in part due to the fact that so many sellers seem to have just given up here in 2011 or have given their properties back to the banks, which are just sitting on them. At the first signs of a true rebound in sales, I expect the number of new listings to surge again. We’ll see.

Looking at normal historical patterns, we’d see about 6% of owner-occupied homes change hands every year, with no more than 4% listed for sale at any one time. It’s spring, so a 4% figure, while high, would be understandable since buyers are so active in the summer.We’d also see in a typical pattern an approximately 1% increase in the single-family housing stock through new construction.

We have about 82,000 owner-occupied homes in the tri-county Savannah metro area, which means we should — again, based on historical trends — see close to 5,000 existing homes and about 1,000 new homes sell during the entire year with a peak of maybe 3,300 listed for sale in the spring and early summer (instead of the 4,480 on the market now). So we’ve overshot that listing target by about 1/3rd. The current pace of sales for the year means we could sell approximately 4,000 single-family homes, which is about 1/3rd below a normal sales pace of around 6,000.

There’s no reason at all — none — to expect the sales pace to pick up significantly in the short run. But even if the sales pace did accelerate, we would still have too many homes listed. It would take many, many months of stronger sales combined with fewer listings to work through this backlog of inventory.

Even if the sales vs. listing numbers start to look better in 2012, which is a dubious proposition, it would be at least 2014 (and more likely 2015-2017) before we’d see the levels of inventory drop back to the 6-month mark generally regarded as the outer limit of a “balanced” market. (While that 6-month number is used often, a 5-month inventory is closer to historical trends.)

One of the most obvious ways for the market to control inventory is to add fewer new homes. And that’s been happening, although the decline has not been as drastic as it could have been — and still could be. New residential investment is typically a driver out of a recession; one reason the recovery has been so weak is that there has been so little recovery in construction.

But we won’t — and shouldn’t — see a significant recovery in construction until we work through some of the oversupply and get more distressed properties off the market.