Real estate supply & demand
I’ve been writing a lot about demand factors lately, and perhaps that’s a function of the buyer’s market we’re currently in. So, as an aside, I will be releasing my Summer 2019 market report sometime within the next few days, but here’s a teaser infographic reiterating that we are, in fact, in a buyer’s market.
The clearest metric defining a buyer’s market is excess supply. Since the market (alongside the economy) operates in a cyclical nature, it’s best unpacked into quarters. This is why businesses use quarterly financial reporting, and this is why I use quarterly real estate market reporting. Fortunately mother nature, in a “lit collab” with someone else in history already invented a social construct called “seasons”. As a result, I’m able to distinguish a couple of general seasonal trends for the aforementioned cyclical nature of real estate equilibrium, which I’ll explain in regards to demand patterns here:
- Winter market – typically characterized by early-adopter demand (those eager to front-run the spring market), and investor demand (trying to get acquisitions on or off their books at the beginning or end of a fiscal year)
- Spring market – people who want to move in the summer, mostly families. As an aside, this creates a selection bias in price metrics because bigger, family homes transact in the spring, giving the appearance of a seasonal “bump” in prices
- Summer market – shut-off demand for spring-market product, sustained demand for niche product that is typically enjoyable/pragmatic to shop for in the summer (waterfront, estates, cottages, etc.)
- Fall market – typically the beginning of the winter-market shopping cycle for investors, and sustained demand from utilitarian buyers, such as first-time homebuyers and downsizers, who don’t want to shop alongside (read: compete with) families in the spring.
I do 4 seasonal reports. I do analyze the market monthly on a more granular level and distribute it to my clients. I’ve learned that people really like for things to be boiled down into “headline” style sentences that they can toss around at cocktail parties to sound like they have an understanding of the market. While I do think that this is pretty destructive to getting a real understanding of how the market behaves, it’s sort of a necessary evil, probably thanks to twitter. One of the biggest questions I get asked when I send out my reports is “is this a buyer’s market?”
My answer right now is “yes, this is a buyer’s market.”
Right now, we’re definitely in an excess supply scenario, and there’s a couple of metrics I use to describe what that looks like, which I’ll explain now:
- declining sales-to-new-listings-ratio – basically, this means that fewer homes are selling than homes are being listed. This is a function of absorption.
- slowing absorption – absorption is a measure of the speed at which homes are selling, when this slows down, it appears as an increase in the average days on market.
- greater than 90 days of supply – if there’s enough product on the market, buyers can shop around, and they will.
- increasing supply – this is sort of a function of the previous, but – basically the demand isn’t outpacing the supply
Up next? A list of incorrect things you might hear an uninformed realtor say in a buyer’s market.
Because somebody has to say it.