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.
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