Market shows willingness to "get hot"
How do we measure how "hot" a market is? Answer; Sales Ratios.
With a big jump in the amount of year over year Pendings we see demand building for what will likely be a busy year in the Pierce County Real Estate Market.
Let's take a look at the rest of the Year over Year numbers
Inventory – UP 8%
Closings – DN 3%
Months of Inventory – UP 4.8
Median Price – UP 12%
What stands out to me is a jump in Pendings compared to last year. In February 2013 we had 921 Pending properties, this year we have 1,065 for a 16% increase! As the Feds taper their purchasing of mortgage backed securities interest rates are set to rise in the coming months. Buyers are signaling that they recognize this and are moving to make their purchase while they can still get their loan at a discount.
The key for this momentum to build in 2014 will be inventory. As the demand increases we will see Sales Ratios increase which will put upward pressure on prices unless it is balanced with a somewhat equal increase in the supply of homes for sale. Without new and additional inventory, high sales ratios will force multiple offer situations with buyers competing for the best houses.
What are Sales Ratios? Using Sales Ratios to measure the strength or weakness of a market is the most effective way to accurately illustrate to a buyer, or a seller, what to expect. Simply put, a Sales Ratio is akin to absorption rate. It measures how quickly or slowly the buyers are accepting what the market has to offer. To calculate we need to know two things; 1.) How Many homes are Pending? 2.) How many homes are Active (available)? Now divide the Pending into the Active. If the result of this calculation is about 55% the market is relatively balanced between supply and demand. When the result is greater it indicates a higher demand and the trend is in favor of sellers, conversely when it is lessor it favors the buyers. Our firm regularly tracks this data for 20 sub-markets across Pierce County and uses it to advise clients. As an example, the North Tacoma trend graph is below, the Red line is the Pending line and the Blue line is the Active (Supply) line. In this graph we see that on February 11th the North End had 97 Pendings and 138 homes Active for a 70% Sales Ratio. Take a look at last Spring and you can see from March into early June the supply line actually dipped below the Pending line, meaning we had a Sales Ratio over 100%. In that environment Sellers have a clear advantage, the best houses see quick multiple offer situations and prices go up.
How can you use Sales Ratios to your advantage? The beauty of Sales Ratios is that you can calculate them for any given geographic area and/or price range. It is like your own personal barometer to measure the market strength which is helpful to both buyers and sellers. For some examples take a look at the charts below which have actual numbers at this time. If you are a buyer for a first time or investment property in South Tacoma between $100,000 and $125,000 you should be prepared to compete for a good property. With a Sales Ratio of 85% there are nearly as many Pending properties as there are available homes. Conversely if you are a seller in the same segment you can look at the comps and maybe "round up" a bit when deciding on your pricing strategy.
Neutral Market Conditions are indicated in Gig Harbor between $300,000 and $400,000 with a 58% Sales Ratio. This type of Sales Ratio gives us a balanced "breathe through your nose" kind of market, giving buyers and sellers the luxury of some time when making their decisions because neither demand nor supply is dominant.
Low Sales Ratio of 17% exists currently in Lakewood in the upper end price range of $750,00 – $1,000,000. Buyers experience less competition allowing them the time to see all inventory, make a decision and possibly a lower offer in this type of market while sellers need to realistic about their home, condition and pricing.
So the next time you are curious and find yourself wondering, "How's the market?" Ask your broker what the Sales Ratio is in the market you are wondering about. If you are selling, buying or just keeping tabs, the answer will give you a much more accurate picture of just how things are. Whether the answer is high, low or neutral will tell you what kind of market you're stepping into and sets you up with a head start against the competition.
Let me know if you have any questions on this report. It's always good to hear from you!