A balanced market?

Yesterday we talked about supply and demand in the housing market. We discussed months of supply: a way to measure what the market is doing by dividing the number of homes for sale by the number of homes sold in a given month.

The fewer the homes on the market (1-5 months’ supply), the higher the prices will be (This is a sellers’ market). The more homes on the market (greater than 6 months’ supply), the lower the prices will be (This is a buyers’ market). We recently entered into an even market (5-6 months’ supply), where the number of homes for sale and the number of buyers for those homes is in a relatively stable place. Nationally, the market is evening out.

Let’s look at where the inventory levels have been this year compared to last year:


In this chart, from the National Association of Realtors, you can see that in January of this year, inventory levels were 24% off from the previous year. Each month since then, the numbers have been decreasing, and at the end of July, we were only 5% off from last year.

Now let’s look at the year-over-year price changes. This graph is from Case Shiller:


Here we see that from June of 2012 until May 2013, housing prices rose higher and higher each month compared to the previous year. In June of this year, the percentage dipped ever so slightly, but the prices remained around 12% for three months in a row. This steadying of the numbers is reflective of the increase in inventory that we are seeing. So the inventory shortage that drove prices higher and higher over the last year is now improving, and nationally we have entered into a more normal market (5-6 months’ inventory).

Some potential sellers might think that because we saw such a rise in prices this year, they should wait another year to sell, in hopes that the numbers will be even higher. Remember, just because the numbers had gone up and up doesn’t mean the trend is going to continue. Rising interest rates and increased inventory should keep prices in a relatively stable place. Hopefully now we will finally see a more balanced market–quite a change from the craziness of the previous years!

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