What is a Balanced Market

Question

Everyone has heard something along the line of less than 6 months inventory is a sellers market and more than 6 months is a buyers market. My question is has this changed?

This made sense historically, but as the residential real estate industry has evolved would six months of inventory really feel balanced or a neutral market? I believe 2-3 months inventory could be the new balanced market.

My reasoning for this is speed of information. Historically to find a house you used an agent who had access to the inventory. Now you can find houses through agents, websites, apps, and get instant notifications when the right house hits the market. Also there are more buyers in the market as investing has been made easier with property management software, connections to lenders anywhere.

Lastly who would think a seller has equal leverage to a buyer with 126 days on market or 4.5 months.

Cheers!

Chris Davidson · Answer

@Wale Lawal great explanation of a balanced market. I know what one is and how it is measure. Was wanting to start a discussion and see if people really thought that 6 months of inventory is balanced still.

The more have thought on it I believe it really needs to be niched down and looked at from starter homes, to step up, and luxury. In short I feel like the measure of inventory is a near useless metric  today when referencing what type of market we are in.

But it looks like a lot of people still really like it.

Mike Dymski · Answer

2-3 months of inventory would mean the average sale happens in 1-1.5 months, which is pretty fast even with technology.

Carlos Ptriawan · Answer

In our place, if DOM is 35 days then something is not correct. But there're lot of houses too that the seller just prints any number in June 2022, and takes off the listing if there's no buyer, and again listing again, only to be sold -150k from the new listing price, 6 months later. So although 126 DOM is bad in reality if we check the house listing one by one and make some adjustment, the reality is actually worse.

Matt Ziegler · Answer

Chris,

If a property has 126 DOM that says something… not priced right, needs work, location…I would think that gives the buyer leverage.

Wale Lawal · Answer

Yes I agree with you, it really needs to be niched down.

Good luck!

Carlos Ptriawan · Answer

You are very right !I do have access to raw MLS data and if I divide the house based on price average, you wuld see different trend, I think my chart metholody is even more accurate than Zillow's.

Carlos Ptriawan · Answer

This is actually very interesting question. I also have the same question long time ago.

It's also interesting that there're banks out there that measure supply and demand by charting "sold houses vs home for sale", so it's more quantifiable metrics rather than the inventory alone, this topic is very sophisticated indeed. I do have the chart for that.

Wale Lawal · Answer

@Chris Davidson

A balanced market is when we have 4 to 6 months of inventory (MOI) of homes for sale. That means if no other homes hit the market, it would take 4-6 months to sell all the properties currently available. Homes sell for reasonable amounts in balanced markets, relatively close to the asking prices.Contrast that with seller’s markets, where inventory is limited, and new listings sell fast, usually above asking, or buyer’s markets, where there is an oversupply of active listings.A balanced market is due to several factors, such as:Interest rates on mortgagesAmount of new housing constructionEmployment and immigrationInflationThe result is a balance between supply and demand.

In a balanced housing market, buyers have more opportunities. They might look at five or six homes, maybe take a break for a couple of days, then go look at five or six more. That’s possible in a balanced market because homes aren’t flying off the shelf.On the other hand, sellers need to do their due diligence to get their homes ready for sale.In a seller’s market, you could throw in an ugly house on the market, and it would sell overnight… but that’s not going to happen in a more balanced market. If your home shows well, though, it will still sell quickly.So a balanced housing market is a win-win for both sides.

All the best!

Drew Sygit · Answer

Would imagine there's data to ascertain if listings are selling below, at or above asking prices. That would be a better measure than a specific time.

Carlos Ptriawan · Answer

yes, it's the common metrics from the last 20 years data. But there're two deviations though, the 6 months are applicable to "all housing inventory", if it's "new housing", the cut off is like 4-5 months.

What is a Balanced Market

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