Inventory Measured in Days, Not Months

Perspective can often be greatly enhanced by stepping back and looking at the “big picture,” and that is what I will try to convey in this offering today.The “big picture” in this case is achieved by taking a look at how the real estate market was performing in another time, then comparing it to how it is performing in our current moment. For this picture, we will be using the comparison of the “Active” homes on the market, and the number of homes that just went “Pending” in the 30 days prior.The division of the number of homes active by the number of pending contracts provides us with a number that we refer to as the “months of inventory.” This has been and continues to be the historic indicator of the market strength. A big number means a “Buyer’s market,” and a small number a “Seller’s market.”So let’s roll the clock back to 2010-2012 when the market was definitely in the doldrums, and buyers were in control. The chart below depicts the market in the Eastside (as noted below).All Eastside Chart: 2010-2012All Eastside includes: Bellevue, Mercer Island, Kirkland, Issaquah, Sammamish Plateau, Woodinville (King County), Bothell (King County), and the Juanita area combined.Notice the huge separation between the blue line (Active listings), and the red line (pending contracts), especially in the 2010 market.In 2010, the buyers were in control of the market. It wasn’t unusual to see homes listed with over 200 days of market time, and buyers had their pick. Nor was there any need to worry about checking out a new listing this weekend, or the next weekend, it was a pretty sure thing that the house would still be available in another month or two. Such was the buyer’s life in those days. With 6 to 7 months of available inventory, it was a quiet market for everybody. No rush, no panic, offer a whole bunch less than asking price – and often get it, or close to it.Now let’s fast forward to today, in fact the stats that are presented here are current right up to Monday, February 27, 2017.Same All Eastside Chart: Current Season 2015-TodayThis chart shows a decidedly different story, and in fact, can’t possibly tell the whole story. There are so few new listings entering the market that the buyers have reached desperation and are beginning to throw everything possible into their offers. The unsuccessful buyers on one listing come right back to compete on the next. Fourteen or fifteen offers per listing are not unusual. While the numbers would mathematically indicate that there is approximately one month of inventory available, the real story is that we could increase the number of listings by ten-fold and still sell them all in that same month.It is our humble opinion that the market has reached a maximum saturation of buyers with little to no inventory such that we can no longer measure the months of available inventory in the historic fashion. Shooting from the hip, we would call this a “days of inventory” market.Bill Badgley