You’ve probably heard “months inventory” or some variant bandied about in conversations about residential real estate. What does it mean?
Months inventory is the number of months it would take to sell every home on the market at a given month’s rate of sales. RMLS calculates the metric by dividing the number of active listings on the last day of each month by the number of closed sales that month. The lower the number, the more the market favors sellers and increasing prices. The higher the number, the opposite. Conventional wisdom is that six months inventory is a balanced market; we think a balanced market is less than that, perhaps four months. Regardless, at the end of June Portland’s inventory of homes for sale stood at 1.5 months.
Graph math: gray bar divided by black bar equals red line.
So what’s behind the tight inventory, i.e., is it more about buyer demand or seller supply?
Right now, it’s seller supply. To illustrate, the number of closed sales in June 2020 was almost equal to closed sales in June 2019 (2709 vs 2756). Active listings at the end of June 2020, however, were only 61% of June 2019 (4109 vs 6735). We needed many more listings just to equal last year’s supply!
That means two things for Portland housing:
1. Home prices will rise for the near future.
Low supply relative to demand is inflationary, and 1.5 months is extremely low. What’s more, the high number of homes scheduled to close escrow in the next few weeks (pending sales) will make the supply even tighter and reflect even higher prices.
2. There is very little chance prices will fall any time soon due to a flood of listings.
There will not be a major valuation loss due to a flood of distressed home sales, as there was in the Great Recession. We wrote about this a few weeks ago in Portland Housing and the 2020 Recession. More significant, though, are the pure numbers: between the July 2007 peak and the March 2012 bottom of the Great Recession’s housing cycle Portland averaged 13,500 residential listings per month, the highest being July 2008 with 18,219. By contrast, Portland had 4,109 active listings at the end of June 2020.
There is simply no foreseeable way that enough homes will go on the market and remain unsold each month in Portland to flood the market this year or next.
Neighborhoods and price ranges vary. Write or call us at 503-222-4300 to learn more about selling your home this year or next.