A year ago every other article I read was about the “shadow inventory of foreclosures,” saying that when it hit the market the sky would fall. Well, the sky hasn’t fallen and inventory is very low. So low in fact, that homes are selling quickly and for higher prices.
Inventory levels are low with a 6.4 month supply of homes on the market in July. This is down 31.2 percent from a year ago, where there was a 9.3 month supply.
Lawrence Yun, NAR chief economist, said there is a clear relationship between inventory and time on market. “As inventory has tightened, homes have been selling more quickly,” he said. “A notable shortening of time on market began this spring, and has created a general balance between home buyers and sellers in much of the country. This equilibrium is supporting sustained price growth and homes that are correctly priced tend to sell quickly, while those that aren’t often languish on the market.”
Available inventory is defined as: The amount of time it would take to sell all current listings at the current sales pace if no new listings became available. Normally measured in months.
Inventory has a direct correlation to what kind of real estate market we find ourselves in. Below I define the three most common markets.
- Three months of available inventory is on the market.
- Inventory is very low as compared to previous months / years.
- Comparable sale prices are lower than active listing prices.
- More buyers are purchasing, resulting in higher closed sale numbers.
- Median sales prices are increasing.
- Real estate ads are getting smaller.
- Three to seven months of available inventory is on the market.
- Inventory is normal as compared to previous normal months / years.
- Comparable sale prices are close to active listing prices.
- Sales numbers have stabilized.
- Median sales prices are flattened.
- Real estate advertising remains uniform.
- More than seven months of available inventory is on the market.
- Inventory is high as compared to previous months / years.
- Comparable sale prices are higher than active listing prices.
- Fewer buyers are purchasing, resulting in lower closed sale numbers.
- Median sales prices are declining.
- Real estate ads are getting bigger.
There is a strange phenomenon happening in many places around the country in today’s economic environment. We are seeing all three of these market types in one area. How is that possible you may ask? Let me demonstrate.
I taught a Professional Real Estate Investor Class in Denver, and while doing my research I found that Denver had a sellers market, a neutral market and a buyers market.
Properties that were selling for up to $250,000 had an inventory of 3½ months which equates to a sellers market. Properties in a sellers market move very quickly and can have multiple offers.
Properties that were selling from $250,000 – $700,000 had an inventory of 6 ½ months. This equates to a neutral market. Properties in a neutral market move slowly and sellers are more likely to negotiate.
Properties that were selling for over 1 million dollars had an inventory of 33 months. This equates to a big buyers market. Properties in a buyers market move very slowly and the seller needs to be open to serious negotiations.
So you may ask yourself or your broker, “Where are the great buying opportunities and how can I get in on them?” That takes research and knowing the local market.
One of the many things taught in the Professional Real Estate Course is tools to identify a good market for investing.
This November Online Professional Real Estate Course has a little different schedule due to the holiday and also trying to make it more available to students. Please know because each session is recorded you can join in at any time.