One of the most important trends that we continue to monitor at the Tallahassee Real Estate Web Site is the movement of home inventory levels. Many of our blogs are written on current inventory trends, and many of the cyclical reports that we publish are based on the supply and demand of housing in Tallahassee.
Doing this so often got me wondering exactly how many homes should be on the market. Is our gross over-supply purely a supply-side issue, or is diminishing demand starting to control the picture? I decided to tackle this question for today's blog.
Tallahassee Area Home Supply Nears 20 Months
When we look at the supply of homes for sale in Tallahassee, we see nearly 20 months worth of supply at the current annualized rate of sales. The real estate graph below shows the entire Tallahassee MLS (not just Leon County), but it demonstrates just how competitive it is getting for home sellers in our market area.
Leon County Home Supply Too High
When we look at the Tallahassee real estate market (Leon County), we see about 40% less home inventory, but a whole lot of inventory nevertheless. We are just over 12 months of supply and that might not mean a whole lot to people who do not pay much attention to the housing market, so I think a simple real estate graph might demonstrate what it means to somebody who HAS TO sell a home in Tallahassee.
The real estate graph above shows current supply (active listings) in red, the amount of homes sold each month in green, and the blue vertical columns measure the months of supply of homes. Even though supply (red line) is dropping, our amount of supply based upon demand (blue vertical bars) has grown. We know we need to see the supply continue to drop quite a bit more.
But this is what has made me wonder ....
How Many Homes For Sale In Tallahassee Is The Right Amount?
Because we have seen such negative sentiment in the market, buyer activity has slowed to a level lower than I have ever seen in my 18 years in the Tallahassee real estate market. But I suspect that we can use some historical figures on home sales to help us determine how many homes is the right amount for Tallahassee to have available at any given time.
Most people around the country consider 6 months of supply to be the state of equilibrium for the housing market. When there are fewer homes for sale, it is considered a Sellers' market, and when there are more homes for sale, it is considered a Buyers' market. Obviously, Tallahassee is currently experiencing a Buyers' market.
Current Inventory Levels Are The Result Of A Boom Market
Using the information that we gathered for the last graph, I have assembled a look at our current inventory compared to the sales rate of the past six years. The resulting graph demonstrates that our current supply is way too high based upon our current sales trend, but it actually would be too low were we selling at the same rate as many of the past 6 years.
The real estate graph shows actual sales each month going back to January of 2003, while the blue vertical bars show months of supply based upon today's inventory levels (there are 2,482 homes for sale in Tallahassee). The red line represents where the blue vertical bar would reach equilibrium (6 months of supply). So anywhere the bars are above the line, the inventory is too high for that rate of sales. Anywhere they fall below the red line, the rate of sales needed more homes to be a balanced market.
It appears as if our current amount would have been good (or even maybe a bit low) for 2003 through 2006. Unfortunately, until we see the economy "stimulated," we are going to need to see our inventories reduced by about 20% more.
Tallahassee Home Supply Balanced At 2,000 Homes For Sale
Based upon my data for the past 18 years, I suspect a balanced market will usually hover around the 2,000 homes mark. We should be seeing roughly 4,000 homes sold each year, with market cycles making home sales reach higher or fall short based upon outside influencers.
So, the answer that I have reached (unless one of our well-informed readers changes my mind) is that 2,000 homes for sale in Tallahassee is the "right" amount.
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.