One of the first indicators people often look at to determine the health of a housing market is the months of inventory. The RMLS releases a market action report each month that shows the current inventory levels. The Market Action report that came out earlier this week estimated the level of inventory in Clark County at 8.8 months. In other words, if no new listings came on the market the homes currently on the market would satisfy buyer's demand for almost 9 months. While inventory levels have generally been a good indicator, they basic calculations (active listings / listings sold in the last month) do not account for today's market for two reasons.
Reason # 1 - Proposed Homes
Cheap lots and a decrease in material costs have made new construction a great value. However, financing for builders is still a major challenge, forcing many builders to advertised "proposed" homes. These are homes they would like to build, if they had a buyer, but either can't get financing to build as a "spec home" or don't want to build as a spec home. In other words, this homes are not really in inventory yet.
Reason # 2 - Short Sales
When a seller accepts on offer on a short sale and submits it to the bank for approval, listing agents often leave these home marked as active in case the first buyer gets impatient with the process. If someone wanted to write an offer on one of these listings, however, they would be in "backup" position and would only get the house if the first buyer walked away from the transaction. So, these homes could more accurately be described as pending, rather than active.
Revising the Numbers
The January Market Action report listed 2615 active listings and 297 homes sold during the month. 2615 / 297 = 8.8 months of inventory. I re-ran these calculations based on the numbers as of February 22, with pending and sold data going back 1 month. Here are the base numbers:
Active: 2569
Sold: 286
Inventory: 9 months
Currently, there are 509 proposed listings. None of the listings that went from pending/active status to sold were marked as propsed. When the proposed listings are pulled from inventory, the inventory drops dramatically:
Active (not proposed): 2060
Sold (not proposed): 286
Inventory: 7.2 months
According to the RMLS, there are 250 active short sales that already have an offer. In reality, this number is likely higher and listings have not been updated. There were 51 listings marked sold that were previously listed as having an offer. When these are taken out of the total, inventory actually rises slightly due to the number of shorts sales that closed:
Active (no offer submitted): 2319
Sold (no offer submitted): 235
Inventory: 9.9 months
The most accurate measure on inventory excludes proposed builds and short sales with an offer. When those homes are excluded from active/sold numbers, inventory is at 7.7 months:
Active (not proposed, no offer submitted): 1810
Sold (not proposed, no offer submitted): 235
Inventory 7.7 months
One last calculation...what if someone needed to move into a new home within 60 days? This would eliminate a short sale and any proposed listings. The number of active listings drops nearly in half. For someone in a hurry to move-in, the inventory level drops to 6.2 months.
Active (not proposed, not short): 1350
Sold (not proposed, not short): 219
Inventory: 6.2 months
When you consider that the RMLS calculated inventory at 8.8 months supply was lower than 2010 and 2011, the revised inventory level is an strong indicator that we will start to see recovery in the market this year.
If you're thinking of buying or selling a home, work with an agent that understands that market! Call me today! (360) 977-8329
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