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Ned Carey's Comments on Real Estate Investing, Business and Finance

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Supply and Demand

August 7th, 2008 · No Comments Yet

Supply and demandThe mainstream media has regularly reported the weakness of the real estate market. The statement is often made that it will take some time to move through the backlog of unsold homes. As you know all real estate is local. What is happening to that backlog of unsold homes here in our Baltimore market?

According to Metropolitan Regional Information Systems, Inc.  (MRIS) the local multiple listing service. The inventory of listings for Baltimore City is rising. Every month this year the unsold inventory has increased. January had 5400 active listings and the most current report showed June as having 5722 active listings.

Number of Listings by Month, Baltimore City:

Month            listings          Sales
January           5400           362
February         5458            400
March              5509            441
April                 5684            450
May                  5697             508
June                 5722             526

But this doesn’t tell the whole story. In June 1299 new listings were added and only 526 were sold. Similar numbers happened every month this year, the May numbers were 1208 new listings and only 508 were sold.

New listings are being added at over twice the rate that homes are being sold. This should indicate that the unsold inventory should be rising at a significantly faster rate. Why isn’t the inventory rising faster?

The answer lies in the listing status; either Expired or Withdrawn. In June 2008,  794 listings were categorized as expired or withdrawn. There can be many reasons a listing is expired or withdrawn but certainly some are sellers who have simply given up on the idea of selling.  

A more extreme example is January where 1026 listings were expired or withdrawn. Compare that to only 362 sales in January. In other words almost three times as many sellers gave up on the idea of selling vs. the number that actually sold a house.

So what does this mean to investors?

The bottom line is that the inventory and backlog are growing.There should be a lot of motivated sellers out there. Just because a seller should be motivated doesn’t mean that they are. Use this info to negotiate.

Doesn’t that mean this is a risky time to buy?

Four to five hundred homes are selling each month. That number has been growing slowly every month. The average days on market was 106. This number has been trending downward slightly, a good thing. Here is an important key, about 1/3 of all sales sell in 1-30 days each month. Properties that are renovated right and priced right can and do move quickly. Smart investors should be able to buy at great prices. If you do a good job, you should be able to resell quickly and profitably.

Happy investing,

Ned

Supply and demand image © Richard Thomas | Dreamstime.com

Tags: real estate

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