The spring market has arrived….sort of. On the one hand buyers are out in droves, motivated by amazingly low interest rates and increased consumer confidence. However, sellers have not come close to keeping pace. My theory is that many would-be sellers, confident that housing prices will continue to increase, are waiting to regain the equity lost during the housing bust of 2006-2011. This group can and will be selling homes in the next 10 years. The question is when?
The issue of low listing supply is nothing new to the Twin Cities market (or to this blog); we have been confronted by this for the past 4 years. However, it is more extreme now than in previous years. Month’s Supply of Inventory fell 28.1 percent in February to 2.3 months—the second lowest figure on record, behind only January 2016. Generally, five to six months of supply is considered a balanced market.
While the solution is easy; more listings (duh?), getting there is complex. In past housing cycles new construction has helped buffer demand. However, new construction is not keeping pace, leaving many would-be buyers in a pinch. Lack of inventory has created a wicked cycle and is slowing the real estate market.
Typically, but not always, when someone sells a home locally they are also purchasing a home locally. Currently, many willing sellers are waiting to find a home to move to before listing their current home. This makes logical sense to me. However, when these potential sellers don’t find a home to move to they simply continue waiting, hence the cycle continues.
This perpetual cycle is becoming an acute problem and may get worse before it gets better. However, statistics show that the peak months for listing activity are not upon us yet. The top months for new listings over the past 10 years tell a story:
Top month’s for new listings over the past ten years
March – 10%
April – 20%
May – 60%
June – 10%
As you can see, in the past 10 years May has been the most popular month to list 60 percent of the time. Furthermore, it has been the most popular month to list a home in 3 out of the past 4 years. In 2015 the peak month was June. Comparing apples to apples, the last 4 years are the most relevant because the housing recovery really took off and we have experienced the low listing dynamic during this same period. This should give buyers some hope that more choices are on the way.
Fortunately, we are in a stable economic environment. The latest stats from the Bureau of Labor indicate that the Twin Cities unemployment rate is 3.1 percent, compared to 4.9 percent nationally. This is the 2nd lowest rate of any major metro area in the United States. This gives me confidence that time is on our side and that the low supply is an obstacle that will work itself out eventually.
Real estate is cyclical, and we are currently at an extreme. As Winston Churchill once said “This is not the end, this is not even the beginning of the end, but it is perhaps the end of the beginning.” Real estate is also very local and the statistics referenced are general in nature. I encourage you to contact your Fazendin agent to help navigate the complex nature of your particular market.