Well, here’s a Short Primer about Inventory Levels which can be used as a Rule of Thumb to determine what’s happening in the Real Estate Market and provide some guidelines to assist in determining when to sell and what to ask your real estate agent.
A Balanced Real Estate Market (aka as a Transitional Market) refers to a market which has approximately 5-7 months of home inventory supply available. You will often hear agents reference 6 months as the mid-point of a Balanced Market. This level of economic activity reflects a time in which neither the Home Seller or Home Buyer is adversely impacted by supply and demand issues and the playing field can be considered somewhat level. The reference to the transitional nature of this type of market is that the situation is more like a see-saw, which will eventually tip in favor of one side or the other. (Buyer vs Seller’s Market)
Should the see-saw mentioned previously flip to the right, Inventory levels would begin to rise precipitously above the 6-7 month level. The rise in the supply of homes available means more competition on the market for Home Sellers who eventually will need to lower their prices or give more concessions to secure a sale. In 2008, Inventory levels in West Michigan rose to approximately 14 months of supply overall in West Michigan due to the Housing Crisis and the increase in Distress Sales. Buyers in the market place at the time sometimes secured homes at far less than 50% of their value in a Balanced Market.
When housing Inventory levels dip below 5 months Supply as they have in February 2012, the Market has clearly transitioned into a Sellers’ Market. Based on Pending Sales, we would run out of homes to sell in less than 5 months! Amazing, especially when you consider how long we’ve heard all sorts of harsh statistics about the demise of the housing industry.
In closing, here is another number which you should know to respond or react to today’s real estate market. This is the SPECIFIC inventory level number for your particular neighborhood. Real estate is always about local market conditions. Assuming that a general number overheard on a media report relates to your particular situation may not be appropriate. To determind what your neighborhood or community conditions are at any given time, please contact us to obtain a FREE Market based analysis.