There isn’t a week that goes by when I don’t bump into past client or friend at Sendik’s who asks, “hey Essam, how’s the market”? It seems like a simple question. But the answer is a bit more nuanced than you might think. The answer depends on whether you are seller, buyer, investor, lender, or Realtor.
A Nerdy Approach to the Market
Let’s go back for a moment and remember some basic economic principles that we learned in high school. Pricing is driven by two components: supply and demand. In our case, supply is the pool or inventory of homes available to sell. Demand is the pool or number of buyers actively ready to make a purchase. We have a balanced market when the pool of sellers and buyers is roughly equal; a buyer’s market when the pool of homes exceeds the number of buyers, and a seller’s market when number of buyers exceeds the number of homes available to purchase.
The supply pool is easy to determine. That information is easily found in MLS (Multiple Listing Service) or most real estate websites. However, determining how many buyers are actually searching is a more complicated task. There are lots of anecdotal measures like number of showings, number of homes that receive multiple offers, or just gut feel. These are imprecise. The best measure is a real estate metric called Absorption Rate.
Absorption Rate helps to measure the velocity of the market by quantifying how many months it takes to liquidate the existing pool of homes. For example, if there are 20 homes for sale and the pace of sales or “absorption” is 4 homes per month, then the we say there’s 5 months of inventory. Please don’t confuse this with days on market. That’s entirely different. We are after how long it will take to sell through all the available homes if no other inventory enters the market. Typically, we define the pace of the market this way:
- Seller’s Market is 0 to 3 months of inventory
- Balanced Market is 4 to 6 months of inventory
- Buyer’s Market is greater than 7 months of inventory
Whitefish Bay Inventory
As of this writing (9/23/2020), there only 14 homes in all of Whitefish Bay that are available to purchase (no accepted offer). The lowest is priced at $270K. The highest is priced at $7M. I have never seen such low levels of inventory in 22 years of practice!
Since May 2020, Whitefish Bay has been on a selling pace of (absorbing) 30 homes per month. Let’s apply this absorption rate to the current level of inventory.
14 available homes divided by 30 homes sold per month results in 0.5 months of inventory. Two weeks of inventory is extraordinarily low. It’s really quite amazing!
How’s the Market
So back to our original question of “how’s the market”? The answer depends on your perspective.
- Sellers are thrilled by rising prices and the fast pace of the market.
- Buyers are frustrated by low inventory and competing offers.
- Low interest rates have lenders backlogged with loan applications from both new purchases and refinances.
- Realtors are racing with hair on fire to service the immediate needs of their clients.
It’s fair to say that we are clearly in a seller’s market. But I offer a word of caution if you plan to sell your home. Don’t overreach with price. Buyers are still demanding and selective. They are great students of the market. They know what’s available how each home compares and can quickly recognize an overpriced and under-presented home. A knowledgeable Realtor will help you price correctly and present your home beautifully to maximize the selling price and ensure a favorable outcome.