The Classic Look Back at Real Estate Inventory
How do you really know if now is a great time to buy? That’s a question I was asked a few days ago by someone who is looking at the real estate market in our area. They’ve been following the prices but also worried by negative, conflicting reports in the news.
Picking on Florida real estate is now a sport and sadly most of the time we, Southwest Florida, get lumped in with the row of vacant towers on Miami Beach and other pointes of slaughter still digging out from under their inventory.
So, how is a buyer supposed to know when the best time to buy is? As a buyer you might have educated yourself on the area, the closing procedures and the pricing but you want to know that you’re not “getting in too soon”.
The pundits will tell you that you can’t gauge the bottom and that the market is like a pendulum swinging, you can’t tell it’s passed the mid point at the bottom until it’s already began to swing upward. What they don’t tell you in the “now is a great time to buy commercials” is how to calculate if it’s really is a great time to buy in your city or neighborhood of choice.
Inventory and location are the two factors to consider when deciding whether or not to purchase real estate. For the sake of the buyer that was in a quandary about moving forward we did a couple of simple calculations to determine how much inventory was in the neighborhood they were considering.
It’s called an absorption rate and it determined, for this buyer, that there was six months of inventory in the community. Six months is a balanced market, by the way. It was only a few years ago that there was seventeen years of inventory in this very neighborhood, which drove prices down. Yes, you read that right … seventeen years.
The current six month of inventory is actually misleading, and not in a bad way, because there are really only three active units and a pile of pending sales not yet closed which is creating illusion that there is more inventory. A typical buyer would have not suspected that the values in that neighborhood have actually risen nine percent over the last year due to the lack of inventory.
Since its summer and I had a little time on my hands and it got me thinking about the real estate market as a whole. Just for giggles I did a broad stroke of the southwest Florida brush and calculated the inventory for single family homes in the multiple listing system.
The total came up to about twelve months of inventory which really shouldn’t mean a whole lot to you unless you’ve been watching the market and knew that two years ago there was a little over twenty-six months of inventory.
Bad news sells so you probably wouldn’t ordinarily hear about that sort of market improvement. If you were expecting news like half of the real estate inventory being absorbed to be trumpeted by television media portals we should have emailed it to Sarah Palin so they could have at least discovered it.
Keep in mind that lumped in that twelve month pile are likely neighborhoods with far more inventory than twelve months and even some with less. The point is that you need to get those hyper local figures from your real estate agent prior to even placing an offer.
Finding out existing inventory and the local absorption rate for the city, the neighborhood or even the street should be a step in your decision making. If your real estate agent can’t do those figures for you, you’ve probably got the wrong real estate agent.
Real Life in Bonita Springs is a project by Chris Griffith dedicated to writing useful blog posts for consumers about the Bonita Springs, Florida area. Find out what it is really like to live in Bonita Springs, Florida by reading about our fair city. You’ll get the latest in local real estate information, Bonita Springs real estate market reports and a little bit of humor. If you have topic ideas, feel free to request a story about the idea, after all, this site is just for you.
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