Important Thoughts On Real Estate Supply And Demand

Real estate supply and demand is the most critical information that we can track about the housing market.

It seems that the lobbyists of the National Association of REALTORS and the National Association of Home Builders are losing control of their spin doctors and housing reports are starting to reflect the reality that we have been reporting in Tallahassee.

We have been reporting a gross disparity between real estate supply and demand for more than 3 years, and I suspect other markets are going to start to realize that they are truly in the same position.

Recently, Altos Research produced a documented article and webinar entitled The US Housing Market: It’s worse than you think, and it really hits the major points that we have been stressing here at the Tallahassee Real Estate Blog since 2007.

Those points include rising supply, falling demand, falling home prices, the emerging shadow inventory of homes, and under-stated real estate inventory levels that will continue to feed the problem for years to come.

The Warning Label Before You Digest

As any of my friends and clients will tell you, I am an optimist by nature and I am entirely bullish on real estate in Tallahassee for the long run. I believe our community is going to grow and prosper, and along the way we will need more homes to house the people that choose to live here. But the long-run happens after a brutal short run that we must endure due to the spike of over-zealous construction that occurred during the boom of the housing market.

This article is written as a wake-up call for anybody who is contemplating selling a home. Sell it now, sell it fast, or plan on dropping your expectations. I have said this for 2 years, and for 2 years we have seen values plummet. Home sellers must quit hitting the snooze alarm! The highest price you will get for your home will happen now. Or, maybe 7 to 10 years from now. But not next year. Or the year after that. Do you want to know why?

Real Estate Supply And Demand Is Broken

Our Tallahassee Housing Reports have shown a gross imbalance in Tallahassee for years. Supply levels are higher than we need, thus prices are falling. This is not rocket-science, it is ECON 101. When supply outpaces demand, prices fall. Even in real estate. In Tallahassee and beyond.

Take a look at the following two real estate graphs. You can click on either one to enlarge if needed. The graph of the left shows how pending home sales have dropped since the end of the housing tax credit program, while the one of the right shows that actual home sales (closings) are seeing it now.

The bulk of the reported recovery in real estate was purely stimulus related, and that program has ended. The sellers that got out during that time will always look back to how lucky or smart they were, and the sellers who held on will realize they left money on the table.

Real Estate Supply And Demand

If you must sell a home in the next three years, sell it today. Do not wait another minute, get the ball rolling now. Avoid the temptation to hire the first real estate agent that you talk to, do the research to make sure you hire somebody who dominates the internet marketing channels. While a traditional marketing plan worked fine before and during the boom, it is not working now (our readers know that roughly 60% of the homes listed over the past year failed to sell!).

As a final note, home sellers need to remember that "historically," home values always rose. That meant keeping a home on the market for a while actually meant the market was catching up to its price (if it were priced too high).

But our real estate supply and demand imbalance has put us in a depreciating market. A home left on the market is falling further and further away from a sale. Don't let this be you.

Be one of the happy ones, the minority of home sellers who succeed in selling their home this year. A careful study of real estate supply and demand in your market is the only thing that separates you from the other happy home sellers.