Real Estate Supply And Demand Update February 2021

2020 is finally far back in the rearview mirror and it's time to evaluate the inventory of homes for sale in Tallahassee.

During our last inventory update, we advised that there were far too few homes for sale to satisfy the current level of demand. Today, I am unhappy to report that the inventory has dropped yet again.

Today’s report focuses on the supply-side of the housing market, looking at what’s coming in and what present levels mean for home values and buyer opportunities today.

First, here's a peek at the newest listings to enter the market, sorted by the date they hit the market, newest first. Of course, you can re-sort them if you like.

New Listings In Tallahassee

A Scary Picture Of What Buyers Face Today

This graph is great news for people contemplating selling a home, while it is a shocking reveal to buyers who want to be active in the market. 

What it shows are all the listings currently for sale in Tallahassee, separated into two different stages. Homes for sale that are already under contract with buyers are shown in blue, while those for sale not yet under contract with buyers are shown in red.

For the first time ever, more than half of all current listings on the market are already under contract with buyers. That's right, 56% of active listings have contracts today versus just 41% just one year ago.

To make this clear, it means that when buyers go online and look at homes for sale, nearly 2 out of every 3 listings is not really available. The supply of homes for sale is far too low for buyers to be able to casually shop for a home. And the situation is getting worse, not better.

The dashed green line plots the 12-month average of the “under-contract” trend, and we’re rapidly seeing this approach 50%. We had never seen this trend hit 40% until last year, and now it is exploding through the roof.

Let’s take an in-depth look at the supply side of the housing market and examine exactly what's happening that is causing the decline in the inventory of homes for sale.

Year Over Year Fresh Listings Fall

After five consecutive months of gains, the number of fresh listings entering the market fell by 3% in December and then by a whopping 25% in January. Considering 2021 had begun the year with too few listings, this is not a good way to find a market correction.

The graph above shows a comparison of how each month fared (percentage-wise) compared to the same month in the prior year for fresh new listings entering the MLS.

I use the term “fresh” to describe homes listed for sale that were not previously listed. These are homes that are truly new to the market, not merely old inventory that was canceled and relisted by the agent or a new agent.

2021 has started off with 25% fewer fresh existing listings than what entered the market in January of last year, so this is not a good sign for buyers seeking more choices when shopping for a home. On  the other hand, it is great news for a seller wanting to top dollar when selling a home.

From a seasonality standpoint, I am expecting a "normal" year in 2021, where most listings enter the market from mid-February through July. Last year produced very different results than what we normally see. We saw 2020 finish strong after a terrible 2nd quarter which brought Tallahassee COVID-19 and a decline in new listings.

Fresh Inventory Report

While the last graph showed a month to month comparison of fresh new listings, this one shows fresh listings in January of each year.

We see that the number of fresh (existing home) listings fell 23% in January when compared to January of 2020. So how bad was January's new listings count? This makes 2021 the worst year in the past 8 when ranking years by the number of fresh new listings entering the market.

The housing market started the year with too few homes for sale, so the reduction in fresh listings, coupled with heightened demand, has pushed prices higher and created pent-up demand for homes.

You might believe this is "good news" for sellers as their homes are now worth more, you also have to remember that most sellers are going to be buying another home in the same market (with the same soaring prices).

Of course, the existing home sales market does not stand alone. We also need to examine what the builders have been doing.

Fresh New Construction Listings

Similar to the previous graph that showed fresh listings for the existing homes market, this graph shows freshly listed new construction homes.

Homebuilders did well last year to raise construction activity, but they fell woefully short (by more than 1/2) of what the market needed. I'm hoping the decline in new construction listings in January is merely a blip and we'll see them move back towards growth. We need local builders to be producing more homes.

If builders do not step up the pace soon, hyperinflation will take over the housing market and we'll see appreciation move far higher than the 9.3% recorded last year. To put this into perspective, the normal rate of appreciation in Tallahassee is just over 3%.

Back in the 1990s, builders were bringing more than 1,000 new homes per year to the market. Right now, with a large shortage of homes, they should be building about 1,500 per year and monitoring the supply and demand numbers to ensure that they're not building too many at any given price point.

That means the 41 new listings in January could really have been 125, so new construction activity was only a third of what was needed!

Slow production means that builders missed an opportunity to sell an additional 600 to 900 homes in 2020 and 80 fewer in January alone. The void that these missing homes did not fill will only disfigure our housing market further in 2021.

To get the global view of the supply side of our market, we combine new homes with used homes which produces the following graph detailing the total number of fresh new listings that have entered the market through November.

Fresh New Listings In Tallahassee

This graph reveals that the combination of builder homes and existing homes makes 2021 the 2nd-worst year (of the past 8 years) for new inventory. Remember, today's sky-high demand has created optimal market conditions for sellers, so there is no reason for incoming listings to be so low.

Of course, with the influx of new homes dropping, the relative supply of homes for sale has fallen even lower. So what does that mean?

The Relative Supply Of Homes For Sale In Tallahassee

This table measures the supply of homes for sale, relative to the current rate of demand. The resulting number for each area and price-range is measured in "months of supply," and what makes the market balanced is a measure of 6.0.

When the relative supply drops below 6 months of supply, we call this a seller's market as there are more buyers than sellers. When the numbers rise above 6, we refer to that as a buyer's market, as there are more sellers than buyers. Red shaded areas reveal a seller's market condition.

The table clearly shows that the supply of homes for sale, relative to the current hot rate of demand, is lower than ever. With the decline of fresh new listings combined with the growth of the buyer pool, the months of supply of homes for sale is terribly low. This table shows you why 57% of our current listings are already under contract with buyers.

For every buyer that closed on a home in January, there was more than one buyer that missed out on the chance to buy a home. The closings could have been more than double the rate closed had there been more available listings.

We need builders to step up and produce inventory in the areas and price ranges shaded in red if they are capable. Obviously, we're not going to see a builder bring in new units under $100K in NE Tallahassee, but there are a lot of areas here that should be pursued.

If I were a builder and wanted to ensure that I did not build homes that the market does not need, I would look at the red-shaded areas with a value below 5 months of supply. The market is demanding these homes, why not build and sell them?

If you are a local home builder who would like analytical guidance on where and what to build, I’m happy to help, just give me a call.

For non-builders, you should know that this is the hottest seller's market ever, so if you've been thinking about moving, it's time to act.

This is the strongest seller's market ever recorded in Tallahassee, but understand that time is working against you should you decide to wait.

Right now, mortgage interest rates are low and you have sky-high demand for your home. But when mortgage interest rates begin to rise, demand will soften in the middle of the market, and nearly stop at the top of the market.

Rising mortgage interest rates will not reduce the value of your home, but it will increase your monthly payment on the home you buy next.

If you plan on buying a home after you sell your current one, take advantage of low mortgage interest rates, or just take advantage of the strong demand that low rates have created.

Don't be the one among your group of friends who in the future says, "you know, I should have taken advantage of those mortgage interest rates back in 2020 when they were so low!"

When moving to, in, or from Tallahassee, you will fare better if you work with a local expert. We are here to help. If you have further questions on the Tallahassee real estate market, you can leave a comment below, give us a call at (850) 366-8917, or drop us a note and we'll give you the local information needed to ensure a successful, smooth transaction.

As a local born and raised in Tallahassee with a focus on customer service, I promise you'll find great success when working with Joe Manausa Real Estate, just as have our past customers. You can read thousands of their reviews reported on Google, Facebook and Zillow right here: Real Estate Agent Reviews Tallahassee.

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