Days on market metric plays dual housing role

By KRISTI BAILEY

There used to be a real estate rule of thumb that said during normal market conditions meant a six-month inventory of homes for sale, which we have not consistently seen for three years

This year, the average inventory in the area monitored by the Northeast Tennessee Association of REALTORS® (NETAR) Home Sales Report is 2.92 months. If you take a closer look at the various county or city markets, you will find it is barely above a one-month supply in some places. Before local home sales took off in May of 2015, inventory was abundant. Still, constant new sales record months absorbed it, and new listings were far below the replenishment level. The norm is one new home for every six existing home sales.

Another way to look at the inventory crunch is the actual days-on-market  (DOM) before a home sells. DOM reports are usually the average of all the home sales in the market, but that falls short of a good description because a few listings can significantly influence an average. For example, if there are a bunch of overpriced homes or homes that linger on the market because they are in poor condition, it skews the average higher. That makes the average DOM not very representative of market conditions.

In October, the average DOM was 100 –  over three months – which does not paint an accurate picture.  A better way to look at it is the median DOM. In October, it was 57 days. That simply means half of the homes sold in 57 days or less. Of course, many of those sales do not make it to the median’s mid-way point. Instances of listings that sell in two weeks or less are increasing.

Watching the median DOM is also a window on consumer demand. When listings linger on the market, the number goes up. That means demand is softening. When it doesn’t change very much, it means demand is constant. When the number declines, it means consumer demand is increasing.

There are two primary ways the local housing inventory condition will change.

  • There’s a quick increase in the number of new homes on the market. New home construction is moving at the fastest pace in over a decade. But the growth is only a little over 1,000 new homes a year in a market that is seeing over 7,000 sales a year. That will not change unless there is a significant increase in the number of modular or manufactured homes. And sales of those are also increasing.
  • Home sales decline. Given current local price growth and an increasing number of relocations here, that is not a likely short-term probability. 

The odds are there will not be much change in inventory conditions in the short-term. That means buyers will continue facing stiff competition. The best way to accommodate that reality is by partnering with a local professional REALTOR® who monitors the market daily. Be prepared to move fast when an opportunity presents itself.

NETAR is the voice for real estate in Northeast Tennessee. It’s the largest trade association in Northeast Tennessee, Southwest Virginia region representing over 1,400 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. The association’s monthly Pending Sales Report, Home Sales Report, Commercial Real Estate Transactions Report, and more on the NETAR website.

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