Low Inventory Driving Short Market Times and Higher Prices
In the $100,000 – $200,000 single family residence market, houses are selling extremely fast. In many situations, there are multiple offers with escalation clauses resulting in sale prices above list price. What is an escalation clause, you ask? We didn’t know the answer to that until last year either. It is a one page form that says “We offer X for the house. We will pay 1,000 above any other offer up to a cap of X.”
Buyer anxiety is high. What is causing this situation? It is relatively straight forward. Its all about supply and demand.
The Greater Lafayette area has had a strong growth in employment over the last couple of years. For example, SIA hired an additional 1200 workers starting in 2015, who are potential buyers of affordable entry level houses.
Conversely, the inventory levels for houses in the $100,000 – $200,000 has gone down consistently over the last 2 years. See graph below which shows sold houses in blue and the inventory level in green. When the market is balanced the active inventory is 3 – 4 times what is sold each month, which was the case back in 2015. Now fast forward to 2017. You can see that the houses sold in the spring and early summer months were greater than the average active inventory. This was not a balanced market and was definitely a sellers market. Houses sold in days. Multiple offers. Rising prices. And some houses not appraising.
Why is the inventory going down? Active listing inventory is driven by how many houses sell each month and how many new listings are placed on the market. See graph below. When the new listings in orange are greater than the sold listings in blue, inventory goes up. When solds are great than new listings, inventory goes down.
Starting in mid-2015, sold houses were on average greater than new listings. Thus, the trend of the inventory has continued to decrease. Anecdotally, it appears that builders have gone upscale, are building fewer affordable houses which is adding additional downward pressure on inventory in this price range.
Finally, there is a vicious cycle going on. Since inventory is low and buyers are finding it difficult to find the right house, current homeowners who are interested in selling their current home and upgrading to a nicer home are reluctant to put their house on the market. This is reasonable! Especially for our senior clients, Team Howlett will not let our clients put their house on the market until we know FOR SURE where they are going to go.
Looking into the future, we do not see a change in the near future (ie 2018) for single family houses $100,000 – $200,000. Inventory will continue to be low. Market times will be short. Prices will continue to rise.
These are generalizations and do not accurately reflect all situations. When you are ready for Team Howlett to come and understand your specific real estate need, contact Team Howlett or call 765-414-6531. We will prepare a plan that is specific to your needs that entails Passionate Customer Care and Market Expertise.