Monday, February 4, 2013

Judging the Market

One of the time-honored ways to judge the strength of the real estate market is by the months of supply available at any given time. In order to derive this number, we take the houses currently listed, and divide by the average number of sales per month, to get the number of months it would take to "use up" the current supply. During the recession, most parts of the country had a huge backlog of homes listed, including many places with more than a year's worth of homes for sale.

Last week, I was on a call with owners of real estate firms across the country, and recovery was in full swing.  The way they expressed this was in the decline of supply, making their areas more sellers' markets than buyers' markets, meaning that buyers no longer had the advantage of dozens (or hundreds) of homes to choose from, since supply had dropped in most places to a few months' worth at most.

In our market, we appear to be lagging, as I have said in recent posts.  Although our market has improved a great deal, we still have a greater supply than other places.  According to MLS figures, we have 7 months of homes under $300,000 available, 15 months of homes between $300,000 and 1 million available, and 31 months of homes over a million available.  This last number means that, if no new homes over a million went on the market from today forward, it would take over 2 and 1/2 years at the current rate of sales for the current inventory to dry up.

It's not quite as black and white as it may sound.  Many houses listed now may be overpriced, have something wrong with them, or may never sell.  Therefore, a seller putting on a home now should not think that his/her own home won't move for over 2 years.  He or she should, however, realize that aggressive pricing, especially in our area, is still important.