Months’ Supply of Homes in Coral Gables (Part 1) — Going Steady

posted on September 3rd, 2010 filed under: Real Estate Market Data

An important measure of supply and demand is the months’ supply of homes on the market — i.e., the number of homes currently for sale divided by the number that sold over the past month.

Months' SupplyThink of it as the number of months it would take to sell off all the homes currently on the market, if sales continued at their current pace.  (Of course, that never actually happens, because new listings are always showing up to replace the ones that are sold.)

The months’ supply figure is an important barometer of supply and demand.  A supply of 6 to 8 months’ worth of homes on the market is generally associated with an even balance of power in the real estate market, so neither buyers nor sellers have the upper hand.  Going much above that range makes it a buyer’s market (more homes than buyers = too much supply = falling prices), and going below that range makes it a seller’s market (more buyers than homes = too much demand = rising prices).

Coral Gables Real Estate Photos -- Country Club Prado 2

For the real estate market in Coral Gables, the months’ supply of single-family homes now stands at about 14.  That’s rather high, but it got up to about 40 or 50 at one point — perhaps unprecedented, although the collapse of the 1920s bubble might have yielded similar figures.  In contrast, at the peak in 2005-06 the months’ supply dwindled to about 3.

For the real estate market in Miami-Dade County, the months’ supply of single-family homes stands at about 11.5.  As with Coral Gables, that figure is way down from its peak, but still indicative of a buyer’s market.

And although the months’ supply of homes for sale in Coral Gables and greater Miami is way down from its peak, most of the decline occurred back in the middle of 2009.  Little further progress has been made toward working off the excess inventory over the course of this year.  The months’ supply has been holding fairly steady.  And by traditional standards, the number remains high, which should continue to exert downward pressure on prices.

Not that you should pass up the home of your dreams if it comes along.  Even if you can squeeze another 10% or 15% out of the market collapse, the house you really want is not likely to be on the market at that point.  So if you’re in it for the long haul and find the right home at a price commensurate with its historical value, buying is defensible.  On the other hand, don’t feel pressured to act precipitously.  The market is not cheap relative to the fundamentals: incomes, historical values, rents and today’s topic, supply.  And we are not going back to easy lending anytime soon.  The chance of a surge in prices appears remote.

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