This past Saturday I posted July’s real estate market numbers on this blog, as well as on Facebook and LinkedIn. Afterward I received a question from a Facebook reader that read, in part: “I’m curious if there is any value in the months of supply metric across price segments? If that is an indicator of a buyer or seller market I wonder how much it shifts as you move up the segments.”
His is an excellent question and one that I wanted to answer. The short answer is: Yes, there is value in breaking out the inventory by price segment; and yes, the current market does shift (from Buyer’s to Seller’s market) as one moves up the price segments.
Before we get into just how much the market shifts as we move across price segments let’s define…
Buyer’s Market vs. Seller’s Market[from Reno, Nevada’s Housing Shortage — How Bad Is It? – Dec. 21, 2017] Local real estate markets are typically described as Buyer’s, Seller’s, or Balanced markets. A buyer’s market is one in which the supply of houses substanitally exceeds the demand for those houses. Such a scenario gives home buyers some leverage over sellers in price negotiations.
A seller’s market, on the other hand, is one in which the supply of houses is substantially less than homebuyer demand for homes. This scenario gives the home sellers leverage over the buyers in price negotiations.
A “balanced market” (also known as a neutral market) is one where buyer demand and seller inventory are at an equilibrium — neither side has substantial leverage over the other. The wide consensus among real estate practitioners and economists is that a balanced market is established when the months supply of inventory (MSI) falls in the range of 4 – 6 MSI.
So, to recap…
- > 6 MSI = Buyer’s Market
- 4 – 6 MSI = Balanced (or Neutral) Market
- < 4 MSI = Seller’s Market
Looking at the data in the table below one can see some stark differences in available inventory across price bands.
Take the Months Supply Inventory (based off of July’s sales) [the 4th column of the table] as an example. One can see that the market stays in “Seller’s Market” territory all the way up to the $800,000 price point before shifting to a “Buyer’s Market”.
Now, July is typically one of our market’s peak months for the number of homes sold, therefore determining MSI based off of July’s numbers may be a bit misleading. In order to to provide a more accurate picture of how the market shifts across price bands, I have also calculated current MSI using an average monthly sales number based off of year-to-date sales.
Using the average monthly sales numbers provides a truer picture. Looking at the results in the last column of the table we see the following…
- Available inventory is in an extreme Seller’s Market scenario in price bands up to $500,000.
- From $500,000 to $1,000,000 the market can be described as Balanced.
- Above $1M the market shifts to a Buyer’s Market — with some segments having more than a year of available inventory.
As always thank you for reading. And keep those questions and comments coming.
1. The medians table above is updated on a monthly basis. The median home price data reported covers the cities of Reno, Nevada and Sparks, Nevada [NNRMLS Area #100]. Residential data includes Site/Stick Built properties only. Data excludes Condo/Townhouse, Manufactured/Modular and Shared Ownership properties. Data courtesy of the Northern Nevada Regional MLS – August 5, 2019. Note: This information is deemed reliable, but not guaranteed.