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How bad do people want your house? Or any house in the Northwest Arkansas Real Estate market?
Well, we can determine supply and demand, which influences pricing, by comparing the amount of inventory available with the number of homes sold within a given month. So if there are 2500 homes on the market and 500 sold in the last 30 days, we would know that (given the same rate of buying) it would take 5 months to sell through that amount of inventory, even if no other homes were added to the market.
This key metric is our Month’s Supply, and it helps us determine if we’re in a seller’s market or a buyer’s market.
Now, we can determine this number for a broad market like the entire Northwest Arkansas region, or just a city like Fayetteville, or even down to a certain neighborhood. But keep in mind, the smaller the sample size, the more inaccuracies can crop up.
So let me break down how we use this number.
If we have a 6 Month Supply of inventory, this is a pretty healthy, stable market. Prices probably aren’t rising much, but they’re not falling either. Both buyers and sellers are getting a pretty fair deal at the closing table.
Now if it drops to 4 months, we’ll see gentle, steady upward pressure on prices because there’s more demand and less supply. This is a classic seller’s market. We can start getting away with adding a little more to our list price at this point.
If it extends out to 8 months, there will be a steady downward pressure. This is a Buyer’s market. At this point, to remain competitive we’ll need to lower our list price to get more attention.
So at 2-3 months, almost everything will sell and we can be more aggressive with higher pricing.
At 10-12 months, if we want to sell, we’ve got to lower the price dramatically and give the buyers a great deal.
Now keep in mind, these timeline metrics apply to average market prices. Luxury homes can have longer Month’s Supply and still remain in an even market, and distressed properties don’t really fit very well into this either. However, this is a great metric for most homes in most neighborhoods.
The Month’s Supply metric is crucial for pricing a home for the market as it stands. Now can the market shift gears and completely change course during the listing? Absolutely. We can’t predict the future, but this does give us an indication of the direction of the market so we can price accordingly.
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