I commented in a couple of posts late last year that things seemed somewhat calmer in the residential real estate market than they had been earlier in 2017 and for the previous few years. I was uncertain whether we were seeing a genuinely slower market, or just a return to something like “normal” seasonality. With residential listing inventory still at half of what market economists consider “balanced,” the slower market theory didn’t make any sense, with possible exceptions in some specialized market segments.
Now, with final data in for the entire first quarter of 2018, I can report that we have NOT returned to “normal” this year. Here’s a look at the percentage of active listings that sold each month from 2005 through 1Q ’18:
The fact that the traditionally slow month of December was the fastest-paced month in all of 2017 was a clue that we had not seen a slow-down. For comparison, the average “odds of selling” for all of 2016 was 42%. The same calculation for the first 11 months of 2017 was 38%. But then it went to 51% in December!
Notice, too, that the “odds of selling” calculation was edging back toward 50% in March. The average since January 1990 was 25%, but it has now been five years since the percentage of monthly sales of active listings dropped below 30%.
That makes it very difficult to keep inventory:
The orange line in that chart is Inventory. The dark blue line at the bottom is Sales. Inventory divided by Sales tells how long the existing inventory will last if the pace of sales remains the same. Market economists generally consider 6 to 6 1/2 months’ inventory to represent “balanced” market conditions, in which neither buyers nor sellers have a built-in advantage in negotiations. The teal-colored line across the middle of the chart is that normal inventory. The Austin metropolitan area has been at half or less of that inventory level for five years now. The “Months Supply” figure was 2.0 in January and February, and 2.2 months in March. If you’re a buyer almost anywhere in the metro area, you’re probably very conscious of that out-of-balance supply and demand situation.
And … being in a textbook “seller’s market” for so long has implications for home prices:
As I have said here and in conversations many times, “Market cycles happen,” and this one will too. The local economists and market analysts that I know and trust agree, but they also know that this pace of real estate activity in Central Texas is being driven by real growth in employment and population, not by speculative investments and nonsensical mortgage products like we saw in the early years of this century. Personally, I believe movement in the direction of better balanced supply and demand would be healthy, and home builders are trying to catch up, but the consensus of forecasts seems to be that we have at least another year or two with market conditions much as we see them now.