{"id":8114,"date":"2023-06-30T22:17:10","date_gmt":"2023-06-30T22:17:10","guid":{"rendered":"https:\/\/imsfund.com\/?p=8114"},"modified":"2023-06-30T22:17:10","modified_gmt":"2023-06-30T22:17:10","slug":"its-time-we-start-redefining-what-a-balanced-market-is","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2023\/06\/30\/its-time-we-start-redefining-what-a-balanced-market-is\/","title":{"rendered":"It&#8217;s Time We Start Redefining What a Balanced Market is"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<h2 class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/h2>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">It\u2019s been generally accepted in real estate that a \u201cbalanced market\u201d has about six months of inventory. In other words, the sales for that month equal one-sixth of the number of listed properties, so, all things being equal, it will take six months to clear that inventory. As\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.noradarealestate.com\/blog\/absorption-rate-and-months-of-inventory\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Norada Real Estate Investments puts it<\/span><\/a><span data-preserver-spaces=\"true\">,<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">\u201cAs a general rule, 5 to 6 months of inventory is considered to be a normal or balanced market. Over 6 months of inventory and we have a buyer\u2019s market. If it is less than 5 months and we have a seller\u2019s market.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Even the National Association of Realtors\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.nar.realtor\/blogs\/economists-outlook\/inventory-and-months-supply\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">states that<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0\u201cHistorically, six months of supply is associated with moderate price appreciation.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">What\u2019s immediately odd about this is that housing prices have fallen since last year despite what should be a seller\u2019s market. In May 2023, prices\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.investopedia.com\/where-home-prices-have-fallen-7487961\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">were down 2.2%<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0nationally from their peak in June 2022. At the same time, inventory was only half that of a \u201cbalanced market,\u201d sitting at\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/HOSSUPUSM673N\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">3.0 months in May of 2023<\/span><\/a><span data-preserver-spaces=\"true\">.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Indeed, just looking at the average days on market in Jackson County, Missouri (the largest county in the Kansas City metro area, where I invest), it becomes plainly obvious that inventory is quite low. It hasn\u2019t taken over a month on average to get a property under contract since before the pandemic.<\/span><\/p>\n<figure class=\"wp-block-image size-full is-style-default\"><img decoding=\"async\" loading=\"lazy\" width=\"584\" height=\"547\" src=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image1-4.jpg?twic=v1\/cover=584:547\/max=1000\" alt=\"Median Days to Sell (2013-2023) - Heartland MLS\" class=\"wp-image-154703\" srcset=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image1-4.jpg?twic=v1\/cover=584:547\/resize=584\/max=1000 584w, https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image1-4.jpg?twic=v1\/cover=584:547\/resize=300\/max=1000 300w, \" sizes=\"auto, (max-width: 584px) 100vw, 584px\" title=\"It's Time We Start Redefining What a Balanced Market is 2\"\/><figcaption class=\"wp-element-caption\"><em>Median Days to Sell (2013-2023) \u2013 <a href=\"https:\/\/kcrar.com\/kcrar-members\/heartland-mls\/about-heartland-mls\/\" target=\"_blank\" rel=\"noreferrer noopener\">Heartland MLS<\/a><\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">Nationwide, the trend isn\u2019t much different. In May 2023, the median time on market for a listed property\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/MEDDAYONMARUS\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">was just 43 days<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0and hadn\u2019t been over three months in many years.\u00a0<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Gauging This Market is Tough<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Now admittedly, this is an odd market, and that may explain part of why prices are falling despite it being a \u201cseller\u2019s market,\u201d given the amount of inventory available. Prices were rising at unheard-of levels prior to the rate hikes last year. Those rate hikes made it much more expensive to buy a home for anyone using debt, which thereby put downward pressure on prices. Yet, because the vast majority of homeowners have low-interest, fixed mortgages, there is little motivation to sell. Thus, while there are fewer buyers at these prices with these rates,\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/the-sellers-strike-has-begun-why-the-housing-market-is-going-dark\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">new listings are down sharply<\/span><\/a><span data-preserver-spaces=\"true\">, which buoys home prices by keeping supply low.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">This dynamic is quite odd, to say the least.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Still, one would expect that if a \u201cbalanced market\u201d were six months of inventory and such a market tended to bring about \u201cmoderate price appreciation,\u201d and instead, actual inventory was half of that, prices would rise or, at the absolute minimum, not fall.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">And remember, prices have fallen in nominal terms. In real terms (taking inflation into account), they\u2019re down by about 10%.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">It would thereby seem that our idea of what a \u201cbalanced market\u201d is needs adjusting.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Part of the problem may be that historically speaking, the average supply of inventory for new home sales has indeed been about six months, if not more.<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" loading=\"lazy\" width=\"1318\" height=\"450\" src=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/fredgraph-57.jpg?twic=v1\/cover=1318:450\/max=1000\" alt=\"Monthly Supply of New Homes (1960-2023) - St. Louis Federal Reserve\" class=\"wp-image-154705\" srcset=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/fredgraph-57.jpg?twic=v1\/cover=1318:450\/resize=1318\/max=1000 1318w, https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/fredgraph-57.jpg?twic=v1\/cover=1318:450\/resize=300\/max=1000 300w, https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/fredgraph-57.jpg?twic=v1\/cover=1318:450\/resize=1024\/max=1000 1024w, https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/fredgraph-57.jpg?twic=v1\/cover=1318:450\/resize=768\/max=1000 768w, \" sizes=\"auto, (max-width: 1318px) 100vw, 1318px\" title=\"It's Time We Start Redefining What a Balanced Market is 3\"\/><figcaption class=\"wp-element-caption\"><em>Monthly Supply of New Homes (1960-2023) \u2013 <a href=\"https:\/\/fred.stlouisfed.org\/\" target=\"_blank\" rel=\"noreferrer noopener\">St. Louis Federal Reserve<\/a><\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">However, most home sales aren\u2019t new construction. \u201cExisting homes, unlike new homes, are homes that are owned and occupied before coming onto the market.\u201d And such sales paint a very different picture. (Oddly, though,\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/HOSSUPUSM673N\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">the Fed\u2019s data<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0for the monthly supply of existing homes only goes back to May 2022.)\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">And as far as evaluating the housing market, existing home sales are a better indicator than new home sales. In March 2023, for example, the annualized rate of existing home sales was\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.mortgagenewsdaily.com\/data\/existing-home-sales\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">4.43 million<\/span><\/a><span data-preserver-spaces=\"true\">. The annualized rate for new home sales was only\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.mortgagenewsdaily.com\/data\/existing-home-sales\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">683,000<\/span><\/a><span data-preserver-spaces=\"true\">. And if anything, the gap between the two is normally bigger.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Fortunately, Bill McBride over at\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/calculatedrisk.substack.com\/p\/question-10-for-2022-will-inventory\" target=\"_blank\" rel=\"noopener\"><em><span data-preserver-spaces=\"true\">Calculated Risk<\/span><\/em><\/a><span data-preserver-spaces=\"true\">\u00a0has the long-term data on existing home inventory. And as you can see, since the beginning of the century, with the exception of the Great Recession and its immediate aftermath, the inventory (red line) has barely ever exceeded 4 months.<\/span><\/p>\n<figure class=\"wp-block-image size-full is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image2-4.jpg?twic=v1\/cover=1060:688\/max=1000\" alt=\"Existing Home YoY Inventory (2002-2023) - CalculatedRisk\" class=\"wp-image-154711\" width=\"1060\" height=\"688\" srcset=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image2-4.jpg?twic=v1\/cover=1060:688\/resize=1071\/max=1000 1071w, https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image2-4.jpg?twic=v1\/cover=1060:688\/resize=300\/max=1000 300w, https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image2-4.jpg?twic=v1\/cover=1060:688\/resize=1024\/max=1000 1024w, https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/image2-4.jpg?twic=v1\/cover=1060:688\/resize=768\/max=1000 768w, \" sizes=\"auto, (max-width: 1060px) 100vw, 1060px\" title=\"It's Time We Start Redefining What a Balanced Market is 4\"\/><figcaption class=\"wp-element-caption\"><em>Existing Home YoY Inventory (2002-2023) \u2013 <a href=\"https:\/\/calculatedrisk.substack.com\/p\/question-10-for-2022-will-inventory\" target=\"_blank\" rel=\"noreferrer noopener\">CalculatedRisk<\/a><\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">One could counter that the real estate market has been hot for a while now and was certainly hot in the early aughts prior to the 2008 financial crisis. So just because the past 20 years have mostly been around four months of inventory or less, that may just be because the market was mostly a seller\u2019s market for the last 20 years.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">There is some truth to this, but still, isn\u2019t it a bit odd that the only time this century that housing inventory exceeded a \u201cbalanced market\u201d was in a real estate-driven financial crisis worse than anything seen since 1929? This strongly implies our concept of a \u201cbalanced market\u201d is a month or so higher than it ought to be.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">There is also another problem. Prices and inventory aren\u2019t nearly as correlated as we would think. During the financial crisis,\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/MSPUS\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">median home prices<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0peaked in Q1 of 2007 and then hit their trough in Q1 of 2009 before rising almost without interruption afterward. Yet, inventory levels didn\u2019t fall below six months until 2012.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Then, as of now, home price appreciation and the inventory levels associated with a buyer\u2019s and seller\u2019s market were inverse. The same was also true in most of 2006.\u00a0<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Conclusion<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Of course, no rule of thumb is ever going to be exact when it comes to explaining a market. There are too many factors involved in a complex economy such as ours for any one rule to do that.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">That being said, it should be clear that one, a \u201cbalanced market,\u201d is probably closer to four or at most five months of inventory than the normally asserted six months, and two, the number of months of inventory is of limited value when it comes to understanding prices.\u00a0<\/span><\/p>\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n<div class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 w-full \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Funding<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Quickly find and compare investor-friendly lenders who specialize in your unique investing strategy. It\u2019s fast, free, and easier than ever!<\/p>\n<p><\/main>\n<\/div>\n<div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n<img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  shadow-xl rounded-md hidden lg:block\" src=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Lender-Match.png\" alt=\"find a lender with lender match\" title=\"It's Time We Start Redefining What a Balanced Market is 5\"\/>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/redefining-what-a-balanced-market-is\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article It\u2019s been generally accepted in real estate that a \u201cbalanced market\u201d has about six months of inventory. In other words, the sales for that month equal one-sixth of the number of listed properties, so, all things being equal, it will take six months to clear that inventory. As\u00a0Norada Real Estate Investments puts [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":8115,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/balanced-market-1024x517.jpg","fifu_image_alt":"","footnotes":""},"categories":[9],"tags":[],"class_list":["post-8114","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/8114","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/comments?post=8114"}],"version-history":[{"count":1,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/8114\/revisions"}],"predecessor-version":[{"id":8116,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/8114\/revisions\/8116"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media\/8115"}],"wp:attachment":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media?parent=8114"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/categories?post=8114"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/tags?post=8114"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}