- - Thursday, December 29, 2011

It was significantly easier to sell a home in November 2011 than it was in November 2010. Here’s why: Inventory has fallen, and sales have risen.

When there are tons of homes up for sale and a shortage of interested buyers, the market stagnates and prices fall. In November 2008, only 4,627 homes were sold out of an inventory of 39,324 homes for sale. You can see on the bottom chart how high the inventory line was, and how low the sales line was back then.

We’ve come a long way since 2008. Just look at the distance between the inventory and sales lines on the chart. See how the inventory fell dramatically in 2009, and has remained low?

Perhaps the best thing that’s happened to the Washington-area real estate market this year is the decline in inventory that can be seen beginning in June. Because inventory has been lower than it was in 2010 for the past six months, buyers have had fewer homes from which to choose.

On top of that, you can see sales have been better than 2010 during the past seven months. Buyers have been more active than they were last year, and with fewer homes to choose from, they are more likely to compete with one another. That’s what causes home prices to rise.

I like to look at sales and inventory together using something I call “sales chances.” Sales chances are calculated by dividing a month’s sales figures by the inventory on the last day of the month, resulting in a percentage. A figure below 20 percent indicates a buyer’s market. Higher figures mean we’re in a balanced market or a seller’s market.

You can see in today’s charts that chances were 27 percent in the D.C. area last month, indicating a very balanced market, verging on a seller’s market. Some parts of Virginia definitely were seller’s markets, where the home seller has some level of advantage over buyers.

Chances will fall in December as many buyers take a break from home shopping. But going into 2012 with such low inventory figures is very encouraging.

Send email to csicks@gmail.com.

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