The law of supply and demand in real estate is irrefutable. It’s important to understand. Generally, if there’s a low supply and a high demand, price will be high, of course. In contrast, the higher the supply and the lower the demand, the lower the price.
So let’s define inventory and absorption rate in real estate. If you take the amount of available homes and you divide that by the amount of homes sold in the past 30 days, you’re left with what’s called a month’s supply of housing. It’s considered a level market when you have a four to six month supply of homes.
If there’s less than four months of supply, it’s a seller’s market. Likewise, a more than six month of supply of homes gives us a buyer’s market. “You need a strong Realtor to help you navigate this market.” So let’s take a look at the Wasatch Front’s supply of single-family homes (excluding townhomes and condos). Right now we have a 4.4 month supply of homes available. Seems like we’d be in a level market, right? Not so fast.
If we look at homes by price range, we only have a 3.4 month supply of homes on the market under $350,000. If we look at homes under $250,000, we have just 2.75 months of supply. This poses a real challenge for first-time homebuyers, as they’re finding they are competing with multiple offers for almost all of the well-priced homes under $350,000.
For that reason, we’re seeing condos and townhomes really take off as affordable housing for first-time homebuyers. In this market, we only have a 3.78 month supply of such homes along the Wasatch Front. As a result, we’re seeing buyers try to tie up homes to lock out the competition - sometimes without even seeing the inside of the home before writing an offer! This allows people to lock up a property even though they sometimes cancel the offer down the road after finding a better option. We’re seeing a lot of this right now.
If you have any questions, give us a call or send us an email. We look forward to hearing from you!