Taking Inventory: Supply Picture Slowly Improving

Taking Inventory:
Supply Picture Slowly Improving

One closely watched gauge of the local real estate market is Months Supply of Inventory (MSI).

MSI forecasts how long it would take to sell off the remaining supply of active listings given the current pace of sales. As a general rule of thumb, a balanced market, where supply and demand is in equilibrium, has about 6 months worth of inventory. But throughout the real estate downturn, MSI has been well above that benchmark.

Lately, however, MSI has become much more palatable. In fact, in the city of Chicago MSI is at a two-year low as of the end of March. While some areas do indeed have an oversupply of homes for sale, other neighborhoods show a virtual balance between supply and demand.

For example, North Center, Lincoln Square, Forest Glen, Rogers Park and the Near West Side, which includes the West Loop, all had around 6 months worth of inventory in March. Lincoln Park, Lakeview, Edgewater and West Town, which includes Wicker Park, all had less than 8 months worth of supply. The citywide average in March was 7.1 months - 50% below March 2009 levels.

Anecdotally, we are seeing more multiple offer situations. New listings that are priced correctly and in good condition are being snapped up quickly. That has not been the case over the last two years. The perception of an endless supply of flawless, inexpensive homes is far from today's reality.

MSI fluctuates seasonally and, historically, is at its lowest during the spring. In addition, factors such as shadow inventory (homes that are in foreclosure but have not yet been sold) are keeping optimism in check. However, it should be noted that this spring's inventory levels have been achieved without the benefit of last year's housing tax credit. Furthermore, in the city condo market, large chunks of new-construction supply have been taken off the market by investors acquiring units in bulk to rent out as apartments. In the past 12 months, almost 1,000 new condos have been acquired in such a manner - more than the total number of individual new-construction sales for all of 2010.

The upshot is that slowly but surely things are getting better. Buyers are still in a strong position but can't snooze on a great listing. Sellers still may be dealing with some disappointment on the pricing front, but if your home is priced and presented right, the buyers are out there.

Of course, every neighborhood, price point and housing type is subject to a unique set of circumstances. For an in-depth analysis of inventory relative to your property sale or search, contact me anytime. And remember I always appreciate your referrals.


Sources: Broker Metrics for MSI statistics. Appraisal Research Counselors for new-construction condominium sales.