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Every day in real estate we are asked about the market. Where is it headed? Should I buy? Should I sell? Real estate is a market, much like stocks and commodities, except real estate is a market of a different beast. Real estate is one of the three basic needs; food, clothing, shelter. Because the market of real estate deals in shelter it is held more closely to the hearts of families. It is also the one market that directly affects everyone.

As a market real estate has its ups and downs. While we may be approaching the cusp of the great recession in real estate we are faced with very confusing times. Many experts are saying

it’s in a solid state of recovery

and others say

it still has another downturn before recovery

This is a great example to show just how local real estate is. The effects location can have on property value depend on such broad aspects as state, county, city, to more narrow aspects as neighborhood, street, down to building, floor, and even compass direction of the windows.

One measure of the current state of specific real estate is months supply of inventory.

Keeping Current Matters

As this image illustrates when there is 1-4 months of inventory prices are appreciating. This is considered a seller’s market because there are more buyers than there is inventory. 5-6 months of inventory is considered an even market. Prices are stable, however, historically this means prices will soon be appreciating or depreciating. When there is 7+ months of inventory prices are depreciating. It is considered a buyers market because there is more inventory than there are buyers.

During the past recession most locales had over seven months of inventory and were in a buyers market. Today the months of inventory is varied from market to market, causing confusion to those who hear differing forecasts for its movement. Whether you are a buyer, seller, or both, this is why it is important to understand the months inventory for the properties that are of interest to you.

For example let’s look at a few scenarios that illustrate the current inventory in Chicago’s South Loop neighborhood.

Traditional Sales

Months Supply July 2012 5.5 3.9 7.3 8.3
Price Range $263,999 and below $264,000 to $331,899 $331,900 to $444,999 $445,000 and above

Short Sales

Months Supply July 2012 1.3 2.8 5.0 1.8
Price Range $263,999 and below $264,000 to $331,899 $331,900 to $444,999 $445,000 and above

Bank Owned Sales

Months Supply July 2012 1.1 2.1 1.0 3.0
Price Range $263,999 and below $264,000 to $331,899 $331,900 to $444,999 $445,000 and above

The charts above show just the price range and kind of sale.

To put this in perspective let’s look at the example of Kelly. Kelly owns a home in the $264,000 to $331,899 price range. She has a growing family and wants to move up to a larger home in the $331,900 to $444,9990 range.
Her family is in good financial health, so they can sell in the traditional market. According to these charts her market has 3.9 months of inventory. It is entering into a seller’s market meaning she has a good chance at selling high and pretty fast. She wants to buy in the next level up. If she were to look for a home strictly in the foreclosure market she would view homes that have only a one month supply. Those homes are so deeply entrenched in a seller’s market that she risks facing multiple offer situations and may have to pay above asking price for her dream home. The short sales in her price range are at the low end of an even market, chances are she wouldn’t deviate far from the asking price if she were to buy in that market. The traditional market is a whole other story!

FreeDigitalPhotos.net

Remember she sold in the traditional market and it was a seller’s market, which is great for her. The buyer’s market she is looking at however has  7.3 months of inventory. Prices are still looking down and according to these charts she may be able to find a deal!

This is just one example of how specific real estate markets can be and how, unless you dig deep, it can be confusing to see from the surface where the market is headed and what would be the best financial decision to make in regards to the situation your life is in.

For information about real estate in Chicago or resources in your area please contact us and sign up for our free market report!

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