Available inventory

No, I'm not encouraged at all. I think you're right that there are lots of sellers attempting to wait this market out until next year or the following. No way months of supply drop by half in five months. I've seen these sidelined properties referred to as "shadow inventory." If this is true, there could be enough inventory waiting in the pipeline to keep inventory levels up for years.

This is horrible. I'm beginning to think it'll take a decade to clean everything out. What a disaster.

Not encouraged either. As a FTH buyer, the inventory currently consists mostly of over-priced small homes with no land that need a lot of work just to be livable. I miss the days when people wanted to sell their homes to a family who will raise their children there. It seems as though now people are just overly greedy trying to get the most profit they can for a home. Bidding wars are horrible to go through, and in most cases lock out first time home buyers like myself.
On a decent home, a buyer cannot even offer asking price with no contingencies without getting into a bidding war because the buyer/seller agent wants more money. And banks that have foreclosed properties refuse to come down on their asking prices to fair market value and potentially take a loss.
This is far from a buyers market.

If everyone just got a grip and realized that the 100% and 200% gains they think their homes rose by from 1997 to 2007 was all a scam, these problems would go away. Sellers, lower your prices by 25% to 50%!!!! Put your greed away!

This way we can stop using tax money to pay for stainless steel appliances and instead use it to pay for schools!!!

Usually takes a decade to clean this stuff out.

I don't see the slowdown in inventory as positive. First of all, I don't think the MAR number includes foreclosures, which if true would mean inventory is just shifting, but still high.

In any case, one would expect inventory to stop dropping at this point, as all but forced sellers take their house of the market. This doesn't really mean much, as the price is set by what is on the market.

Time on market is meaningful, as is the number of months of supply calculated using current buying (standard method). Until that drops noticeably, prices will continue to drop.

As I've said before, by some crude metrics we are due for another 30% nominal drop in order to return to hundred year medians. That may overstate the drop, but on the other hand its rare for markets not to overshoot on both the upside and the downside.

I highly doubt we will see any correction prior to the 2009 spring market, and in fact don't think we will see one then. I still think people are holding out hope that prices will come back next spring. When that doesn't happen, I think people will capitulate to the market and prices will come down dramatically.

This will involve a reasonable amount of "forced capitulation" ie foreclosures, of course. We should start to see them even in heretofore resistant areas - often resistance means more assets and thus an ability to delay the inevitable. But as in the story of King Canute, the tide will win.

For some people, it's a disaster. But for the responsible thirty somethings who didn't get swept up in the mania, refrained from overpaying, and decided to keep renting, this bust is wonderful.

Because when the dust finally settles, we'll be able to buy decent homes for reasonable prices; we won't be overstretched, we won't be stressed, and we won't be worrying about our massive depreciating asset.

I think it is a good sign - supply-and-demand.
When prices get low there is less incentive to sell and so supply goes down which can help stabilize prices. As this "shadow inventory" seeps in to the market over time, the market has more ability to absorb them without causing a spiraling downward pressure on prices that comes when everyone puts inventory on the market at the same time.

I suppose your question is imprecise. Encouraged to what end? As a potential buyer I am encouraged that I'll have plenty of time to feed on the bottom. As a potential seller, I'm happy that we haven't yet reached the point of fire-sale prices.

Am I encouraged that we will have a rapid rise in prices? No.

It's hard to believe that Boston is immune to the housing downturn. On the other hand, there must be enough buyers in Boston area to support the housing market, because the price is still up in some towns.

Ironically, the high price (and strict regulation) also keeps developers away. The reality is that the actual housing price here is much higher than what the statistics says. For a median-priced home ($400ks), people will have to spend another $100-200K to bring it to 21st century's standard. So, why don't people move to other places? That's my puzzle.

The other issue affecting demand is the sales of foreclosure listings from the spring inventory have not yet been replaced by new foreclosure listings because of the 90 day waiting period enacted by the state. Once the initial 90 days pass, I think we will see inventories rise again.

It is meaningless to compare months supply of inventory between February, which is always the month with the lowest sales, with that of June, the month with the highest sales. It would be like estimating annual Christmas tree sales by taking the number of trees sold in December and multiplying by 12.

In this area, generally, the number of sales in June is nearly two and half times larger than February's. If you were to adjust the February pace to the June pace, there would have been a bit over 7 months of inventory in February, indicating that that metric is getting worse. If you adjust the June pace to a comparable February pace, there would have been more than 19 months of inventory. If you even it out, there is, in reality, about a year's worth of inventory, which is deep in buyers' market territory.

As to where the inventory is going, sales are declining, which means potential FTH buyers are on the sidelines. The sidelines, for most of them, is rental property. The fact that this logjam of people who are not leaving their units for their first home should be causing a huge spike in rents. The fact that rents are certainly not skyrocketing is an indication that much of the excess inventory is now being rented out by "accidental landlords".

This whole situation puzzles me. I purchased my home in late 1995 for $180k and my neighbor purchased theirs the next spring for about the same. Now he is irate that his house is selling for over $500k. It has been on the market for about 5 months and he only lowered the price once and by $20K.

I mean its 10 years older needs updating, like mine, and he is trying to get rich off of it. Makes no sense.

Confused, clearly your neighbor saw some of the other neighbors get 570K at the top and was expecting that he would get around that. So to him, he is lossing 80K by not selling back in 2006.

I am encouraged by the idea that the market hasn't hit bottom yet. As a future first time buyer, I don't have a down payment saved yet (not if I want to retain any savings, that is), and anyway houses are barely affordable within 40 miles of where I currently rent.

Once the Missus and I have the down payment in hand, then we'll start looking. But if the market looks then like it does now, we'll take our time. They say rent is "wasted" money, but overpaying for a house wastes more and quicker.

I think the analysis that people are sitting on the sidelines is correct. People who paid more for their house than it is currently worth are not going to sell their house unless they have to. Other people (such as Confused's neighbor) are delusional, but you can't necessarily blame them for not wanting to sell now if they think they'll get more in the future.

So where does this leave the market? Essentially, no one is selling unless they have to. This is why we see some locations holding value and some nose diving. The locations where the prices are nose diving, there are large numbers of people who cannot afford their home, and therefore have to sell (or foreclose). The locations where values are holding, people are better able to wait this out.

I think we are going to see this trend last a long time (> 5 years). Prices may continue to decline slowly in the better areas, but the better areas will see such low inventories that any price declines will be modest.

The not so fortunate areas will probably finish bottoming out in a year or two, but it'll be a long time until they actually recover.