Active Homebuyers Must Track These Real Estate Supply Trends

Comprehensive report on the supply and demand for homes in November 2021Have you been home shopping in the past year? You go online, you find a few homes you'd like to see, so you call your Realtor to arrange a time to go see them. Yep, that's what homebuyers have been doing since listings moved to the internet.

But when you talk with your agent, you are told that those homes are already sold! Another buyer has already got them tied up. It's so frustrating. Today, you really have to track the supply and demand for homes so that you know just how aggressive and flexible you will need to be when it comes time to find a home to buy. Our report today will give you everything you need, including a better way to find the available homes online.

I've included a list of the current active listings in Tallahassee, sorted by price from high to low. As you scroll down towards the median home, take note of just how many properties are already under contract with buyers!

Active Listings In Tallahassee

700 Properties
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Housing Supply Update

This graph displays the current homes for sale, separated by whether or not they are under contract with buyers.

Graph shows the status of active listings in the Tallahassee MLS November 2021

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. The ratio of homes under contract to all homes listed for sale is shown as a solid green line and measured on the right vertical axis. The green-dashed line reports the one-year trend of this under-contract percentage.

Right now, there are 503 homes for sale in Tallahassee that are not yet under contract with buyers. This is the most we've recorded since the 535 that were available in January. To provide some context for these numbers, Tallahassee has averaged 470 homes sold and closed in each of the past eight months, so the actual available inventory is only enough inventory for about five weeks worth of buyers (meaning it's just over one month's supply of homes that are available!).

The percentage of homes under contract rose last month, something that is not uncommon were it not for such a large leap. Currently, 60% of the listings in the MLS are under contract with buyers which is significantly higher than the 49% recorded one year ago.

When we take in the big picture of the graph, it is clear how things are so different today than they were ten years ago. It shows how the market has gone from a strong buyers' market to a strong sellers' market.

From left to right, look at how the percentage of homes under contract has reversed. On the left side of the graph, the height of the red bars was about four times the height of the blues, meaning there were far more homes for sale NOT under contract than there were homes under contract with buyers.

Right now, 60% of all current listings on the market are already under contract with buyers, meaning that today, three out of every five active listings have contracts today versus less than one-half just one year ago.

Buyers must understand that when they go online and look at homes for sale, most of the homes they see are not really available, as other buyers have them secured with contracts. I can't tell you how many times a buyer calls us to go see a home they found on a national real estate website and we have to tell them it has already been put under contract. This is why we recommend you use our property search tool, it updates every 15 minutes and is the best source of current listing statuses on homes for sale in Tallahassee.

As I have been saying for years, the supply of homes for sale is far too low for buyers to be able to casually shop for a home. The situation remains slightly better than it was in the summer, so if you are a buyer in the market, you might want to get aggressive right now before the rest of the market responds.

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 low level of availability of homes for sale.

Fresh Listings Year-Over-Year

This graph shows 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.

Graph of year over year fresh new listings in Tallahassee November 2021

The past two months have recorded declines in the number of homes listed for sale in 2021 when compared to the same months in 2020, but let me remind you that COVID had a huge effect on home sellers last year. Homes were withheld from the market in the second quarter last year but then poured into the market in the third and fourth quarters. This is a contributing factor in the gains over the summer and the declines in the past two months. Right now, I feel the market has returned to its normal seasonal flow.

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Fresh Resale Listings

While the previous graph showed a month-to-month comparison of fresh new listings, this one reports fresh listings of existing homes from January through October of each year.

We see that the number of fresh (existing home) listings has risen 9% in the first ten months when compared to the same ten months last year. So how does 2021 compare with the previous seven years? 2021 now ranks at the top of the recent eight years when ranking them by the number of fresh existing listings entering the market.

graph shows the number of fresh existing homes listed for sale November 2021

The housing market started the year with too few homes for sale, so even a healthy 9% rise in fresh existing home listings has done nothing to bring balance to the market. And it won't in the future either.

Existing listings have been added to the inventory, but the majority of these sellers become buyers so the net effect in the market is low. The continuing low supply of homes coupled with heightened demand has pushed prices higher and has accelerated real estate appreciation to unhealthy levels.

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

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

Fresh New Construction Listings

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

The number of new construction homes listed for sale in Tallahassee over time November 2021

The number of listings for new construction homes entering the market is just 60% of what was brought to the market last year. The 395 new construction listings are down 40% from the 654 new construction listings created through October 2020. This low production level is not going to solve our problem. Tallahassee needs local builders to produce more homes.

With home builders producing homes at a slower rate, rapid appreciation has taken over the housing market. Last year's appreciation of 9.3% was nearly triple what we would expect in an average year, and this year's rate currently is annualized at more than 13%. At this point in time, I see don't see this rate cooling very much next year either unless we see a major spike in mortgage interest rates.

New Versus Existing Home Sales

This graph plots new home construction sales versus existing home sales annually from January 1991 through October 2021. The number of existing homes sold is shown in blue, while the number of new homes sold is shown in red. The gray line plots the new construction percentage share, while the dashed gray line plots its ten-year average.

New construction home sales versus existing home sales November 2021

Back in the 1990s, builders were bringing more than 1,100 new homes per year to the market. In the next decade, the average was over 1,300 homes. The last decade saw that average decline to 434 homes per year.

Initially, the decline in new construction was just what the market needed, as the supply of homes was far above the level of demand and it took years to consume all the extra homes. That correction was completed in 2016, since then, we have needed "normal" building operations to ensue.

With today's relative supply of homes for sale sitting near three months of supply, our inventory could easily be doubled, so builders today can comfortably permit another 1,000 homes on top of what is already permitted. You have to remember, while demand is high, it has been stifled by a lack of inventory, so having more homes in the past would have resulted in more sales.

Slow production means that builders missed an opportunity to sell an additional several thousand homes over the past five years. The void that these missing new construction homes did not fill has created a lopsided market with home values going out of control. So let me make this clear, had we built more homes since 2016, home values today would not be growing at double-digit appreciation rates. Several thousand additional homes built since 2016 would have kept growth close to traditional rates.

Now that we've covered existing and new construction homes separately, let's examine the global view of the supply side of our market, where 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 October.

Fresh Listings Of Homes For Sale

This graph merges the supply of homes found in the previous graphs. The combination of builder homes and existing homes has 2021 ranked #1 of the past 8 years for new inventory entering the housing market. Remember, today's sky-high demand has created optimal market conditions for sellers, so even with the top rank, we're seeing historically low inventory levels.

Tallahassee real estate market new listings report November 2021

This year might have allowed a turn in the supply of homes for sale were it not for the decline of new construction home listings. In fact, when coupled with heightened demand, the current stream of fresh listings has kept the relative supply of homes for sale near record lows. So what does this mean?

It means tough sledding for buyers. Buyers right now are feeling the fear of missing out as we are seeing small but steady increases in mortgage interest rates, but we find the inventory far too low to satisfy this demand.

Even as we've seen an increase in existing home sellers, we've seen demand remain strong and steady. Supply remains low, demand remains high, so home prices are going through the roof.

Stale Inventory No Longer A Major Supplier

Another set of listings we track is those that have recently been listed for sale, left the market without selling, and then returned with a new real estate broker. These are the "stale" listings.

Stale listings re-entering the housing market with a new real estate broker November 2021

The graph above shows the stale listings coming back into the market each year from January through October. With inventory low and home sellers' success rate near 90%, this list continues to get smaller. The 359 stale listings that have entered the market through October in 2021 measure 59% fewer than the 867 stale listings that entered the market in the first ten months of 2015, and 22% fewer than what we reported last year. 

The major takeaway you can glean from this graph is that one major segment of the supply chain has been depleted. For many years, we always had a bank of homeowners who had demonstrated a desire to sell, and it was from this bank that we drew the inventory needed to keep the market in balance. When demand grew, we pulled harder from the stale listings. When demand declined, we drew less. Next year, there will be very few of these homes from which to fill our declining supply of homes.

The number of listings that go stale will never go away, but today's count is fewer than any year going back to the market crash of 2006.

Months Of Supply Of Homes

This table measures the supply of homes for sale, relative to the current rate of demand. The numbers in the table represent the number of months of supply of homes for sale.

Historically, a market with six months of supply has produced steady home sales and an appreciation rate of just over 3%. 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.

It is common to have a combination of conditions across the overall market. Not all areas and price ranges have reacted the same to the primary influences on the housing market, so this is why we have to segment the market to pay close attention to the differences that exist.

The table segments the market through home price categories in $50,000 increments up to $1M. Red-shaded areas reveal a sellers' market condition. Orange areas remain in a buyers' market, while the few white-shaded areas are areas that are fairly balanced.

 the supply of homes for sale, relative to the current rate of demand in November 2021

These results clearly show that the supply of homes for sale, relative to the current hot rate of demand, remains near a record low. With the decline of fresh new listings combined with the growth of the buyer pool, the months of supply of homes for sale is woefully low. This table shows you why such a high percentage of our current listings are already under contract with buyers.

Right now, the overall market below $800K is facing strong sellers' market conditions. There are areas and price ranges on the west side of town down to about $300,000 that remain in a buyers' market, and overall across Leon County, homes priced above $1M remain in a glutted buyers' market.

The very bottom line of the table shows you last month's relative supply, and we see that it declined across all four quadrants. We'll keep a close eye on this to see any new trends forming, but for now, pay close attention to the area and price ranges for the homes you plan to sell and buy. Overall, know that market is crazy hot right now, so you have to have a good plan.

For every five buyers that closed on homes in October, there were at least three more buyers that missed out on the chance to buy a home. The closings could have been nearly doubled 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 $150K in NE Tallahassee, but there are a lot of red-shaded areas in our table that could 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 we are on the backside of the hottest seller's market ever, so if you've been thinking about moving, it's time to act.

Right now, mortgage interest rates remain very low resulting in sky-high demand for your home. Rising rates are gradually reducing demand, so as time goes by there will be fewer buyers for your home.

Rising mortgage interest rates won't likely reduce the value of your home any time soon, but the rising cost of borrowing money 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 these low rates have created.

One day in the future, you will look back at 2021 as perhaps the last chance ever to get a home at these low prices and be financed with a 3% mortgage interest rate. In the future, not only will home prices be higher, but so too will be the rate you pay when you borrow money for the home. Don't let this opportunity slip away!

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