What does low inventory mean to a Seller?

You have heard lately that the Twin Cities is experiencing “low inventory” in the housing market.  But if you are thinking of buying or selling a home,  you are probably wondering exactly how does it impact you?

We measure inventory by “Months Supply” which is defined as: Active (housing) inventory vs. the last 12 months of homes deemed Under Contract (sold). Also known as “absorption rate”.  For a simple example, if 12 homes sold in the past 12 months, that is 1 home sale per month.  If there are currently 3 homes on the market – and an average of 1 home sold each month – that means there are 3 months of inventory on the market. This means that if no other homes came on the market, it would take about 3 months to sell all the homes.  Of course, new homes come on the market, and some leave the market without ever selling, but it gives us a good measurement of whether it is a buyers market,  a sellers market or a balanced market.

 Here is the latest Months Supply chart for the Twin Cities Market:

As you can see on this chart for the past 10 years of housing inventory, the Twin Cities is experiencing record low inventory. These are also averages across the Twin Cities and can vary in areas and price points.

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A balanced market occurs when there is about an even amount of buyers and sellers – typically about 5-6 months of inventory.  A buyers market, as we had in 2008-2011, would have 6 or more months of inventory.  This means there are more sellers than buyers, and this is why we saw housing prices drop so low during that time period. If there are less than 4 months of inventory on the market – as we have right now, this is called a sellers market.   

What does low inventory mean to a seller?

Sellers have more power in this market because they do not have as much competition.  If you are selling your home right now, you can expect a shorter time on market, lots of interest and showings right away, fewer requests from the buyers for repairs and possibly even multiple offers if you price your home correctly.

What about pricing your home?  The key to getting the best price for your home right now is making sure you price AT the market –  and resisting the temptation to price above the market, even though demand is high.  Your agent should provide you with recent sales that are comparable to your home, in your area, and show you at what price these sellers were able to sell their home.  In an appreciating market, if you price your home based on past sales, not the current competition (although it is important to monitor your competition) you have a higher chance of receiving multiple offers on your property.  When there is high demand for your home, you are in the drivers seat as far as negotiations and making terms work in your favor.

Median Sales Price in the Twin Cities:

What if you are buying your next home?

One challenge for a seller right now is finding the next home to move to.  We do have ways to mitigate this concern.  We have sold homes in the past where we have made the sale contingent on the seller finding the next home to purchase.  There is a time frame in the purchase agreement giving the seller time (usually about 2 weeks) to find a home of their choice and to reach a deal to get that next home under contract.  If they cannot find a home in the time period, the purchase agreement on the current home can be cancelled, or the time frame extended if buyer and seller agree.  We disclose the need for the contingency in the listing, and actively start looking for a home for the seller once we put their home on the market.

This scenario will always put the seller in a better financial position than the old way of finding the new house first and making an offer contingent on selling the current home.

Thinking of selling your home?  Every situation is different and there are many options available to you as a seller right now, including selling your home without going through the stress of getting it ready for the market.  Give Myra Jensen at BRIX Real Estate a call for a confidential consultation or fill out the form below and we will show you how to take full advantage of the market.