Any home buyer or home seller entering the real estate market should take the time to understand the market you are entering. I will provide a county overview each month so potential home buyers and sellers can get a general idea of the market activity throughout each county. Since it is an overview, and the figures displayed represent ALL municipalities within the county, keep in mind that there will be variations from town to town. Depending on the number of available homes and the number of buyers purchasing in a specific town, the area specific market data may be significantly different. I highly recommend any home buyer or home seller do the research needed to determine how to proceed with the purchase or sale of a home in a specific town.
So, how do we determine if it’s a seller's market, balanced market, or buyer's market? I use a pretty simple formula based on supply and demand. Since the data in any given month can be extremely volatile, I use a 12 month average for properties sold. As the monthly sales increase or decrease, so will our averages accordingly. Using 12 full months of data also takes into consideration the seasonal shifts. In this area, we usually see an increase in market activity in March through August, and a decrease in market activity in September through February.
Let's say the last 12 full months had 1200 properties sold. We divide that figure by 12 and get an average of 100 properties sold per month.
If our current number of properties available for sale is 300, we divide it by the sold average of 1oo, and get the figure that represents how many months it will take to deplete our inventory if the sales average remains the same. In this case we have an inventory accumulation of 3 months.
The inventory accumulation figure is the key in determining what market you are in and how quickly homes are being sold in your area. Most listings are taken for a 6 month period in this area. So, a 5 to 6 month inventory accumulation would be considered balanced. That means that there is enough buyers in the market to keep a steady flow of sales and there is a pretty good chance for a home to sell within the 6 month period. Homes that are priced well and in high demand areas will most likely move quicker, and homes that are over priced or in low demand areas will take longer to sell. There are enough available homes for buyers to choose from so bidding wars are at a minimum, and price negotiations are probable.
If the inventory accumulation figure is between 1 -4 months, this indicates conditions favorable to sellers. The lower the number the stronger the seller's market is. It indicates that the supply (number of available homes for sale) is low and the demand (number of homes being sold) is high. The chances for multiple offers and bidding wars increase, and prices increase accordingly, sometimes well over asking. Sellers are less negotiable and buyers may end up losing multiple properties before "winning" a bidding war.
If the inventory accumulation figure goes in the other direction resulting in 7+ months, this indicates a buyer's market. The higher the number the stronger the buyer's market is. It indicates that the supply (number of available homes for sale is high) and the demand (number of homes being sold) is low. In a buyer's market you will see homes sitting for long periods of time, sometimes having to extend their listing agreements 2 or 3 times before the home is sold. Buyers, having the upper hand in this market, and are able to negotiate terms that are favorable to them. Sellers have to be more negotiable and extremely competitive with their pricing. Over priced homes won't even be considered or will receive extremely "low ball" offers. Anxious sellers will sometimes end up taking a loss on their properties if sufficient equity has not been accumulated.
Going back to our example with an inventory accumulation of 3 months, that would indicate a seller's market. The supply would be considered low and the demand on the higher side.
Keep in mind that the data for any given 12 month period does not guarentee similar results for the future. There are a large number of factors that can affect future inventory and home sales, a few of which are interest rates, foreclosure rates, and of course, affordability. The higher the sales price the lower number of home buyers will be able to purchase the home. A seller's market can shift into a buyer's market within just a few months, and vice versa. Keep an eye on your local market if you intend to buy or sell so you can negotiate, or not negotiate, accordingly.