Months Supply of Sonoma County Entry Level Real Estate Declines Sharply
One of the most interesting measures of the tension between buyers and sellers in a real estate market is the “Months Supply of Inventory” figure. What this number tells us is the number of months it would take to sell the existing number of homes for sale at the present rate of closed sales.
Buyers Market or Sellers Market?
Generally six months of inventory is considered to be a market balanced between buyers and sellers. Anything less, and sellers are advantaged in negotiations. Anything more, and the trend favors buyers. Two years ago in Sonoma county, there were 6.2 months of entry level inventory for sale.
When the first wave of foreclosed properties began hitting our market in force in 2007, the inventory piled up to a high point that so few properties were selling, as many more were coming on the market. Consequently, MSI (Months Supply of Inventory) ballooned to a 14.8 months supply, a strongly favored buyers market.
Early in 2008, banks began slashing prices and buyers have been increasingly active ever since. (See my posts under market updates beginning in March to track this trend.) The lower priced properties, driven by foreclosures, have steadily been absorbed by first time buyers and investors.
They have been gobbling up REO’s so quickly that now there are only 2.7 months of inventory available at the current rate of new listings and sales, a strongly favored sellers market.
If you are a buyer interested in purchasing an REO home, it is important for buyers to be prepared for the market realities especially for the most solid homes in the best locations.
1. You must have a STRONG pre-approval. In many cases first time buyers will be competing with all cash investors for the same properties.
2. You may need to make multiple offers on a stream of properties before you land the right one.
3. It ALL DEPENDS. Make sure you have a committed working relationship with a realtor who is knowledgeable about the changing market, and who knows how to present and negotiate your offer(s) in the best light.
Just as sellers have learned (in some cases!) to be realistic, it is important for buyers to do the same. Happy hunting!