Why Is Understanding Inventory Important?
One of the most important measurements that we use in the real estate industry is monthly inventory. Monthly inventory is the number of homes on the market in relation to the number of buyer demand in the market.
There are two types of markets: a buyer’s market and a seller’s market. A buyer’s market is when the buyers have the upper hand in negotiations because there are more homes on the market than buyers. The sellers are thankful the buyer chose their home rather than their neighbor’s home for sale. A seller’s market is when there are more buyers than sellers and the buyer is thankful for the seller for choosing their offer over other buyer’s offer. We have been, and will continue to be, in a seller’s market.
Because there is such high buyer demand in our real estate market, the inventory is lower. Currently it is less than two months of inventory. The point in time when the market changes from a seller’s market to a buyer’s market is at six months of inventory.
Aside from buyer demand, other market pressures on inventory are caused by interest rates, demographics, and the season of the market.
Interest rates were so low the last few years that many of the Baby Boomers that were expected to downsize to a smaller home chose to refinance their larger home instead and “age in-place”. Seasonality in the market follows what is known as the “Spring Buyer’s Season” which generally starts in March and goes through August. Because of the increase in buyer demand the last few years, the buyer’s season has started as early as January and lasted through November.
Inventory has been at record lows, creating a very strong seller’s market with buyers having to compete against multiple offers. We don’t see this changing anytime soon because of the buyer demand in the market. When interest rates went up this last year, inventory felt like it went up substantially but when we look at the numbers we can see that we are still very much below the six-month mark that would make it a true buyer’s market. For that reason, we advise people wanting to buy a home this year to not wait! Buy sooner than later and if interest rates go up, you’ll be paying less than if you had waited. If the interest rates go down, you can always refinance to get the lower rate.
Understanding monthly inventory numbers will help you understand how competitive the market is and whether we are getting closer to a buyer’s market or staying in a seller’s market. Let us know what questions we can help you better understand about the market by contacting us here.