I read a piece in Seeking Alpha this weekend about the inventory situation in the real estate market.  The author's theory is that the improvement we've seen in inventory levels in the last few months is an illusion. And, he gives formulas for computing what the current inventory really is.

His thinking is that the people who pulled their homes off the market, really still do want to sell. In addition, there are many people who have not put their homes up for sale, but would like to sell. His conclusion is that prices will continue to fall for much longer than most people are anticipating because of the huge amount of unseen inventory.

He makes some good points. Certainly there is some unseen inventory out there. There are a substantial number of people just waiting for the market to "turn around" and then they'll list their homes for sale.

But I think he overestimates the size of that universe. Some of the people who have decided not to see in this market will give up the idea all together. Some of them didn't have a pressing reason to sell in the first place. They'll make improvements to the home they are in and stay another five years.

Some people wanted to sell their homes because they had attractive job offers elsewhere. But, in light of the current market, they passed up those job offers.

There's a growing number of owners who have rented out their homes rather than sell them and take a big loss.  Some of those owners will decide they like being landlords and will hold onto that asset. Others will at least hold onto the house as long as they've got good tenants and they can continue to pay their mortgage.

As with so many things, none of us know what the real inventory number is. But the blog post did get it right that the number is higher than what you'll see in October's report due out this week.

I always enjoy hearing Robert Toll, CEO of Toll Brothers, on his quarterly conference calls. He's always refreshingly honest and will undoubtedly make me laugh out loud at some point during the call. And the one this week was no exception.

"With respect to traffic, it’s still dismal. Traffic is -- it’s consistent, however. It has not gotten any worse for the last three quarters, so we feel as though we’ve stabilized but I don’t want to give you the indication that that makes us feel good. It’s as though we walked into the tar pits, sunk up to our nose, our feet are touching a ledge and we are not going down any further but that sure doesn’t make us feel that comfortable...But we are heartened that at least we are able to spook up the traffic. That indicates that there are buyers out there waiting to be nudged. It will take a general turn in confidence for the big nudge to occur but sooner or later, it will occur."

 He's hit the nail on the head as far as traffic goes. Here's a chart that illustrates this at a local level for Prince William County:

There is still a huge gap between where inventory is and the number of sales. And this is after a huge jump in sales in Prince William recently. If you look at nearby counties the discrepancy is often even more jarring.

Unfortunately, there aren't any charts that give us foot traffic statistics. But this clearly illustrates the dilemna for the market. Excess supply in a free market economy inevitably pushes down prices. As long as this gap is as large as it is currently, there's no sign of a bottom from a price perspective.

It's a good thing Robert Toll has a good sense of humor!

There are a lot of sellers sitting out there wondering whether to try and sell now or to hold off, at least until spring, in the hopes of seeing a better market then.

There's some data to suggest you might as well bite the bullet and do it now. The S&P/Case-Shiller index of home prices shows that the last real estate downturn, in the late 80s and early 90s, it took about seven years for the market to recover enough the prices began to rise again.

We're only a couple of years into this one. And, this downturn may play out differently. There are certainly plenty of interested parties, especially in an election year, who would like there to be some good news on the real estate front. But it seems unlikely that two years or maybe even three will be enough to move us back to rising prices given the amount of inventory out there.

And, you'll see an increase in the number of homes selling, I suspect, long before you see that begin to push up the prices of those homes.

So, if you're wondering whether to put your house on the market now or wait for the spring market the answer is that it probably makes very little difference in terms of the price you'll get for your home. What you should consider is that, as in most years, I expect the inventory to jump tremendously in the spring and the competition for the buyers will be much fiercer.

Maybe the real question is how will your home fare against the increased competition?