I hear it all the time. “Five months of supply is a balanced housing market.” Is that really true though? Let’s unpack this today and digest the importance of narratives and national vs local stats. I know this sounds like geeky stuff, but it’s so important (see action steps). Any thoughts?
I’VE BEEN GONE FOR MONTHS
First, let me just say it’s really good to be back. I took the last ten weeks off to heal from an ulcerative colitis flare. I’m in a much better place now, and I’m ready to get back into the rhythm of work and posting once a week here. Honestly, it feels great to even want to write again because my creative spark was missing in action while I rode the couch. Anyway, thanks everyone for all the support. I appreciate the encouragement and kind messages.
FIVE MONTHS IS LEGIT NATIONALLY
When people say five months of housing supply is within the “normal” range or represents a balanced market, I get it. This checks out nationally. For any onlookers, having five months of supply means there would be enough listings to satisfy five months of buyers if no other listings hit the market. By the way, thanks Jonathan Miller and Lance Lambert for helping me with the NAR data.
PRICES WOULD BE TANKING WITH FIVE MONTHS…
Prices would be plummeting in the Sacramento region if we had a five-month supply. Even four months would be an oversupply for the region. So, when people say, “Bro, five months is balanced,” that’s simply NOT true locally. The Sacramento region is pretty balanced somewhere around 2.0 to 2.5 months, and the market would start to feel pretty dull even at 2.5 months.
BALANCE CAN CHANGE
Real quick. We can say five to six months is balanced nationally, but that might not make sense forever. Markets and definitions can change, and sometimes old sayings don’t always fit in the future.
DIFFERENT PARTS = DIFFERENT TRENDS
Housing supply isn’t the same animal at the top. So, when people say, “X amount of supply is balanced in Sacramento,” that isn’t true for every part of the market. For instance, above one million dollars consistently has more supply than any other local price range.
WHAT IS BALANCED LOCALLY?
I included a range below for each county, and I’m hoping this doesn’t lead to arguments. I’m speaking generally here. If you think the range is slightly different, that’s cool with me. Please realize this is NOT an extremely rigid range where the market changes dramatically when it crosses above or below.
PLACER COUNTY
- 2.0 to 2.75+ months has been balanced in recent years
- Some months have been around 3, and that’s not a big deal either
- Placer has consistently higher supply than Sacramento
- Part of having more supply has to do with having higher prices (the higher the price, the more supply there typically is).
EL DORADO COUNTY
- 3 to 4+ months has been fairly balanced
- El Dorado is much closer to the United States trend
- El Dorado is consistently higher than Placer and Sacramento
- Prices would be declining in Sacramento County if Sacramento had El Dorado supply levels (the market is not the same everywhere).
YOLO COUNTY
- 2 to 2.75+ months has been fairly balanced
- Some months have been just above 3, and that’s not a big deal either
- Yolo County is very similar to Placer County in terms of supply
SACRAMENTO COUNTY
- 1.75 to 2.25+ months has been balanced in recent time
- We’ve been freakishly low for so long (but now in a balanced range)
- The market would likely feel really dull at 2.5 months
- Sacramento County runs lower than most surrounding counties
- Part of having lower supply has to do with lower prices (we tend to see lower supply at lower prices and higher supply at higher prices).
ACTION STEPS
1) SAVE THE PUPPIES:
Whenever someone says five months of supply is balanced for the local market, a puppy dies. Okay, that might not be true, but we need to let stats form our narrative. Some people in real estate impose national housing stats on the local market, but part of real estate expertise is being informed about local trends so we don’t do that (save the puppies).
2) WATCH INVENTORY CLOSELY:
We’ve seen inventory build lately in most markets across the country, and the housing market is not as tight as it was last year. My strong advice is to avoid sensationalism, follow housing voices without spin, and stay grounded in local stats by focusing on what’s happening with the number of active listings, new listings, pendings, and sales. I actually make pretty graphs every month to show all of this stuff. Email me anytime you need these trends. If you’re not local, check out Redfin’s weekly housing stats as a good place to start.
3) TELL THE STORY
One of the cool parts about real estate is there’s always something interesting to talk about. My hope is that some of this post can become content on social media. Use these visuals to talk through dynamics, flex your expertise, or dispel real estate myths about five months of supply.
4) LOCAL STATS FOR YOU
If you aren’t in Sacramento, but you have the months of supply in an Excel spreadsheet, I’d be happy to make a graph for you comparing your local market to the national trend. The offer is good for the next month, and you simply need to email me a spreadsheet with the date (by month) and months of supply in order. It might be the last few years only too, and that’s fine.
THANK AGAIN
Anyway, thanks again for all your support these past few months. This was not a fun season for me, but I’m now emerging to better health. I have big plans for the rest of the year, I’m going to get another tattoo with my oldest son, and I’ll resume speaking gigs in October. Much love.
I hope this was interesting or helpful.
Questions: What stands out to you about the stats? What are you seeing out there in the market right now? I’d love to hear your take.
If you liked this post, subscribe by email (or RSS). Thanks for being here.
Great to have you back and feeling better. I’m excited that you had this conversation because inventory is often not well understood.
Thanks so much Gary.
Ryan,
I’m glad you’re feeling better, and I always enjoy reading your posts … the insight and the humor.
I really appreciate you. Thanks Lisa.
Welcome back!!! I feel like every time I speak to anyone about “The Market”, I have to spend 10 minutes deprogramming the national trend out of them. Non-experts tend to watch the national news which reports the national trend from NAR. Very few people I encounter (and even some “professionals”) have a good understanding of the local trends that may very well be diametrically opposed to those reported by their favorite major media outlet. Even more difficult is if the national trend fits the narrative that particular party wants to believe. Education of clients and colleagues is of the utmost importance and the data does not lie. Thanks for the article!
Thanks Brian. Love the commentary. It’s all about education, and it’s very challenging sometimes to help people see the real trend in the market. I find this to be particularly true at times with market temperature issues. For instance, some sellers believe in Bay Area buyers so strongly that they just can’t quite listen to what anyone or the stats are saying. “I’m going to fetch a crazy high offer because of all the Bay Area buyers….”
Sometimes what people believe about real estate is simply from headlines or hearsay. Though when it comes to beliefs about supply, my observation is quite a few real estate professionals are stuck on national stats instead of local ones, so I do think the real estate community has an opportunity to do a better job. To be fair, it’s not the worst thing in the world to quote national stats. I’m just saying there is such massive value in knowing the local market and being fluent in local market trends. Seems like that’s what expertise looks like… I do suspect some marketing firms that agents hire end up packaging the 5-month idea into material. That’s part of the issue. I’ve seen it a few times this week alone on Instagram.
Anyway, great convo. Thanks.
I find balance of inventory an interesting topic. As you said it is market specific. But my old brain remembers 3 to 6 months as stable inventory during the 1990’s until 2003. Then it came around again 2009 -2013. So market specific and economy specific. Really glad you climbed back up in the saddle. We all missed ya. Stay healthy.
Thanks Brad. Agreed on market and economy specific. I appreciate the kind words too.
As you note Ryan, one has to also analyze the subject market segment that may differ substantially from the larger market segment, or not…
Thanks for the always meaningful and tangible information, regardless of our respective markets!
Exactly. Thanks so much Brent.
Oh how I have missed your insights into the stats and market! Welcome back, and thanks for all the information on inventory, a very timely topic!
Thank you so much Michael. I really appreciate it. Yes, let’s watch inventory closely. This year we’ve seen growth in new listings, which is a good thing. Yet, the number of new listings is still about 34% lower than the pre-2020 normal. The bigger trend is we’ve seen the pile of listings grow more than the pile of sales this year, and that is why the market isn’t as tight as 2023. We are still far below normal, but it’s not as competitive as 2023, and it’s definitely not the insanity of 2021.
By the way, for any onlookers, I’m still having issues with comments. I have no idea why comments are being held for moderation. Granted, whenever someone comments for the first time, it is held. But otherwise people should be able to just share thoughts without moderation. Anyway, I’ll figure this out eventually. It bugs me though because I don’t want to communicate a lack of trust for people who have regularly commented.
Welcome back!
I think a great way for a noob realtor to show their clients they know what they are talking about is by showing how different national and local real estate can be. As others have said, the media reports national averages, which basically have nothing to do with anything. People only hear about specific areas when there’s chaos (Florida).
Sellers very often get delusional about pricing and timing based on national averages.
I see similar variability in my field of real estate photography. Sometimes a particular part of the country is hot, so those photographers get a lot of work, which leads photographers in other areas confused as to what they are doing wrong (nothing).
It’s like saying the average shoe size is 9, so why aren’t my shoes a size 9?
Or remember when the air force made fighter jet cockpits to an “average” size pilot, then they measured the pilots and found none of them fit the “average” seat?
So good. Thank you Joda. That’s fascinating to hear about other photographers too. I’ve never thought about that before, but it makes total sense. I see something similar on appraiser forums when someone asks if others are busy. It’s very hit and miss depending on location and other factors I’m sure.
You are so right about Florida. I think Florida and Texas in particular have been getting a ton of attention lately with supply. But not every location around the country is experiencing the same dynamic. On a related note, sometimes people highlight one property, but what is happening with one house doesn’t always reflect the trend in the market. I see this all the time on X / Twitter especially. While it’s interesting, it’s not always useful. Does this one tree represent the forest? That’s always my question.
Welcome back Ryan! Your weekly words of wisdom and fun commentary have been missed. So glad you’re feeling better!
Thanks Carolyn. I’m so thankful to be back, and I’m excited for conversation. I appreciate the kind words.
I am ashamed to say I didn’t miss your weekly posts until I had a question that I knew you would have the answer to. I didn’t miss your insightful, encouraging, relivant, intelligent input!!! How dumb!! I do think it speaks to the abundance of information that is out there and how the negative or challenges in life stop me from getting refueled with positives!!! Thanks for the help you gave me & all the refueling you do!!!! Tatooing? That surprised me, will it be a graph?
Thanks Charllis. It was good to chat recently. I’m always game to talk shop and help where I can. And yes, there is so much great information out there. No tattoo graph. My oldest son asked me to get one together, and that was an easy YES for me. I only have one tattoo, which is a late ’90s tribal tattoo mistake I got in a friend’s garage. This will be something different and not visible (not a butterfly tramp stamp though). 🙂
I am glad to hear you’re feeling better, Ryan!
I always look forward to your granular and incisive market updates.
Thank you,
Sergio
Thank you very much Sergio.
So glad you are feeling better and back with insight and knowledge to share. This is timely and valuable information and perspective.
Thank you so much Debbie. I’m hoping this resonates. I think it’s really interesting and even practical for us to watch and talk about.
Glad you’re better.
MoI, in my opinion, is really just a “half indicator” since it measures one item (SOLD) in relation to one other (ACTIVE). Placerville 95667 is the highest MoI that I track (52 zip codes, 3 counties) at 5.6 but the movement of the median price suggests that sellers can still get a half million dollars in Placerville ($450k in 2019). In August, Active inventory was 58% of its [10yr Aug Avg] of 153. And Sold was 34% of its [10yr Aug Avg] of 48. So numbers are paltry for Placerville. The Lean calculation for each “phase” is showing SOLD and PENDED leaning toward buyers and NEW, ACTIVE, CDOM & MEDIAN leaning toward sellers. So my Lean indicator depicts the same favor with more granularity.
To your point, nothing is balanced right now. If it’s not a gut punch from the Fed, it’s a gut punch from California or our own lobbying entity NAR.
Thank you Jay. I always appreciate the stats you bring to the table. We are technically approaching “balanced” levels, but the market may or may not feel that way for lots of reasons. It would be really healthy to see the months of supply tick up higher then two months in the region in my opinion.
Welcome back Ryan! I listened to a national zoom presentation a couple weeks back. The presenters stated that “national home prices” had only dropped 7 times since 1945. I guess they forgot the old adage that real estate is local.
Stay healthy.
Thank you Bruce. Yeah, I find a focus on national stats can sometimes obscure what is happening locally – whether that’s intentional or not. I actually got a real estate mailer yesterday with a quote from a prominent housing voice stating that national prices are not poised to decline. Okay, what does that do for the local buyer? I’d love to hear from any onlookers. Is that comforting or meaningless? On a related note, there is so much focus on what happens to home prices during a presidential election year or a recession, but that’s a short window (especially a recession that might b very brief (six months maybe). Case-in-point. Prices declined in Sacramento in the early to mid-90s, but some national stats being shared suggest the market was increasing in value during a presidential election year and/or recession.
Nice to see you back.
I see so many overpriced premium (+$1M) homes now, they’ve been on the market for 6-8-10 months. And yet nice homes that are priced-to-market sell in a week after a bidding war.
So what’s the real inventory? I suppose it always averages out, that’s why they call it “average supply” 🙂
Thanks Josh. Yeah, there is a real disparity between homes that are moving quickly and ones that are sitting. It’s either multiple offers or crickets. I think that sums up the market perfectly. The months of supply simply captures all the listings that are on the market compared to the number of sales happening. To your point, we have to think through why the numbers are the way they are. I do think buyers are frustrated at times with the lack of quality listings. But part of the frustration is really stemming from a hyper-sensitivity to condition, location, and price. More affordability would help cure some of the sensitivity. For now, buyers are rightly being picky.
So glad to have your blogs back! Always thought-provoking and interesting. There’s nothing better than following the local real estate markets to know exactly what is happening in specific areas. I always like to think of the bigger markets (national/regional) as the backdrop for what is happening locally. It may provide some nuances or background noise but it’s not the main focus of the picture. Again, glad to have you back!
Shannon, great to hear from you. Thanks for the kind words and commentary. I’ll be curious to see your next few blog posts as everything seems to be bigger in Texas – including housing supply. Though I’m not sure if Dallas is showing Austin vibes right now in terms of supply growing.
So glad to see you are back!
Boom, and he’s back! Selfishly, I felt a void not being able to read your blog each week these past few months but I’m glad to hear that you’re back to good health with the creative juices flowing.
That’s so nice of you to say, Matt. Next week I have lots of market stats coming out. Looking forward to sharing.
Missed you, my friend! Love the stats, as always!!1
Thanks so much, Paula.
WOW! Ryan, you need to go on sabbatical more often. This was a familial piece. Months of supply is usually brushed over quickly and compared to national average way too often. Most people get the fact that property values are location specific, but this also holds true with DOM, Supply and other stats. Welcome back. You always make me think.
Thank you very much, Mark.