By: Victor Normand
Published: May 2014
Real estate professionals agree that presently, there is a shortage of homes for sale in most areas. Consumers who are actively looking for a home to buy would most likely agree. In the larger economy, whenever there are more buyers than sellers of anything, the market will correct the imbalance, and so will the housing market….. eventually. It takes considerable time to produce new housing and it apparently takes considerable time to convince existing home owners to offer their property for sale.
Sometimes there is urgency on the part of sellers and buyers to make a move in the instance of a job change perhaps, but often there is a rather big window of opportunity within which to make a move. For the most part, buyers are living somewhere now and can continue that way, and sellers often seem to be waiting for inspiration. Unfortunately for sellers, when a clear sign comes, it is often too late and the most favorable conditions have passed. For some potential home sellers, waiting for a home to return to its peak value is an indicator of when to sell.
In some Massachusetts communities, home values have reached or surpassed the peak values of 2005. Those communities tend to be the towns in the inner suburbs of Boston, mostly east of route 128. Other cities and towns located south of Boston and in the north central towns are far from recovering their peak values. In our market, most towns are still off the peak by around 10% (see the chart below). Still other potential home sellers are held back by the fear that once they sell, they will have trouble finding something to buy in this tight market.
The perfect situation is a balanced market where all sellers and all buyers are equally matched in number. Unfortunately, while balanced markets do happen, they rarely happen for very long. There are clearly times when it is a buyer’s market, like during the years immediately after the Great Recession, and there are times when it is a seller’s market, like now. More often we are in a state of transition where buyers think it is a buyer’s market and sellers think it is a seller’s market. So, knowing the inventory of homes on the market relative to recent sales activity is a good measure of the overall condition.
The chart below shows the current supply of listed single family homes by town, the number of home sold in the previous 12 months, the actual monthly absorption rate and the number of months it will take to sell off the current inventory. Nationally, in 2010, the worst real estate year after the Great Recession, the absorption rate stood at 9.4 months. According to the National Association of Realtors, a balanced housing market should have between 6 and 6 ½ month of inventory. The rate for the entire state of Massachusetts in presently 4.4 months, and in our market the average is 2.6 months.
Like politics, all housing markets are local. In our market, housing values are increasing in most towns, though not as fast as others and not yet fully recovered to their pre-recession levels, and the inventory level of houses for sale are so low as to keep the market in favor of sellers. That is the condition today, and tomorrow you can be sure changes are likely.