Is it a buyer’s market or a seller’s market? Is there a way to tell other than gut feelings and anecdotes about how quickly homes are selling or not?
Of course.
It’s called months of inventory (or absorption rate).
Months of Inventory and Absorption Rates are the same thing. “Absorption Rate” is a term more likely to be used by real estate investors.
Months of inventory is calculated as follows.
# Homes Active / (# Homes Sold / Timeframe)
For example, 57 homes on the market with 79 sold in the last six months works out to 4.3 months inventory.
57 / (79 / 6) = 4.3
That means that if homes continued selling at the same rate, and no more homes came onto the market, every home would be sold in 4.3 months. Hence, 4.3 months inventory.
In real estate, generally 5-7 months inventory is considered a “neutral” market. Fewer months is a seller’s market, and more months is a buyer’s market.
Here is my current analysis of inventory as of August 8th, 2015, along with the change since I last calculated inventory in March. Fewer months is a stronger market, and you can see, in most ZIP codes, inventory is shrinking.
Here are the numbers for multi-families. Duplexes remain steady, but fourplexes are disappearing from the market, as I observed a few weeks ago.
There are some shortcomings to my analysis. My timeline only looks at the last six months, which happens to capture most of the “hot” season in Fort Hood real estate. That may skew the inventory. Also, this information includes builder homes on the MLS, however many builders don’t have their final sales on the MLS. The sample size in smaller communities like Nolanville does not necessarily represent a statistically significant analysis.
What does this mean to home buyers and sellers?
Seller’s markets are better for sellers. Right now, Fort Hood acts like a buyers’ market. It is extremely common for sellers to contribute $1000s toward the buyer’s closing costs, and to accept relatively low earnest moneys ($500 or so, versus $3000-$5000 in hot markets like Austin). If Killeen’s inventory ever shrank to just a few months for very long, these concessions would disappear, prices would begin trending upwards, and buyers would have a harder time buying a home.
I don’t foresee that in the near future, especially as builders continue adding more homes to the Fort Hood Area inventory. But I will keep checking in on the numbers from time to time!