Our AI writing assistant, WriteUp, can assist you in easily writing any text. Click here to experience its capabilities.

It’s Time We Start Redefining What a Balanced Market is

View Original View Raw

Summary

This article takes a look at the commonly accepted definition of a "balanced market" in real estate, which is typically considered to be six months of inventory. It then examines how this definition is not necessarily accurate, as home prices have fallen despite what should be a seller's market. The article argues that the traditional definition of a balanced market should be adjusted to four or five months of inventory, and that the number of months of inventory is of limited value when it comes to understanding prices.

Q&As

What is generally accepted as a "balanced market" in real estate?
A "balanced market" in real estate is generally accepted to have about six months of inventory.

What is the inventory level in a "balanced market" according to Norada Real Estate Investments and the National Association of Realtors?
According to Norada Real Estate Investments and the National Association of Realtors, a "balanced market" has five to six months of inventory.

What is the current median time on market for a listed property nationwide?
The current median time on market for a listed property nationwide is 43 days.

What is the dynamic that explains why prices are falling despite it being a "seller's market"?
The dynamic that explains why prices are falling despite it being a "seller's market" is that prices were rising at unheard-of levels prior to the rate hikes last year, which made it much more expensive to buy a home for anyone using debt, and new listings are down sharply, which buoys home prices by keeping supply low.

What is the implication that our current idea of a "balanced market" needs adjusting?
The implication that our current idea of a "balanced market" needs adjusting is that historically speaking, the average supply of inventory for new home sales has been about six months, but most home sales are existing homes, and the inventory for existing homes has barely ever exceeded 4 months since the beginning of the century.

AI Comments

👍 This article provides an insightful perspective on how the current market conditions might not be accurately reflected by traditional definitions of a balanced market.

👎 This article fails to provide any meaningful solutions to the current market conditions.

AI Discussion

Me: It's about redefining what a balanced market is in real estate. Basically, it's been widely accepted that a balanced market has about six months of inventory, but the article is suggesting that a balanced market could be closer to four to five months of inventory. It also suggests that the amount of inventory isn't necessarily an accurate indicator of prices.

Friend: That's really interesting. It definitely has implications for anyone who's looking to invest in real estate. If the market is unbalanced, it could mean that it's a buyer's market, so prices could be lower, or it could be a seller's market, so prices could be higher.

Me: Exactly. It also means that it's important to look at other factors when evaluating the market, such as the number of new listings, the average days on market, and the median time on market for listed properties. It's also important to consider the impact of mortgage rates on home prices, since that can influence whether people are looking to buy or sell.

Action items

Research the correlation between home prices and inventory levels in your local market.
Analyze the data from the National Association of Realtors and the St. Louis Federal Reserve to better understand the current market.
Reach out to experienced real estate investors in your area to gain insight into the current market conditions.

Technical terms

Inventory: The number of properties available for sale in a given market.
Median Time on Market: The average amount of time it takes for a listed property to get under contract.
New Home Sales: Homes that are newly constructed and have not been previously owned or occupied.
Existing Home Sales: Homes that are owned and occupied before coming onto the market.
Annualized Rate: The rate of sales over a 12-month period.
Rate Hikes: An increase in interest rates, which makes it more expensive to buy a home with debt.
Nominal Terms: The current market value of a property, without taking inflation into account.
Real Terms: The market value of a property taking inflation into account.