The most common thing I’m asked by people I meet is, “How’s the market?” Sounds simple enough. They know I’m a real estate agent and are interested in my work.
Part of the answer to that question centers around the market itself, rather than my role in it. Is the market moving fast or slow? Related to this question is which side does the market currently favor? Are we currently in a buyer’s market or seller’s market?
That’s exactly what I’ll be covering with this piece because our current market is extremely unbalanced.
Here’s a little real estate 101. You likely already understand this but just in case you don’t, here goes. When there’s a great deal of Louisville housing inventory, buyers have more options while sellers have a greater competition to selling their home. So it’s a buyer’s market.
When there’s very little inventory, seller’s call the shots so buyers have to pay more. This is the inverse—a seller’s market. In real estate circles, when there are approximately 6 months of housing inventory, we consider it a balanced market where neither side has the advantage.
The term we use to describe housing inventory is called the absorption rate. Think about it this way. If zero new listings came onto the market and sales continue at their current pace, how long would it take to run out of inventory? That period of time is the absorption rate.
The Current State of Affairs
So where are we now? First, let’s look at where we were.
Back in February 2008, the absorption rate for Jefferson County was 7.64 months. That’s a buyer’s market, just barely. Two years later, it’s up to 8.54. Then this happened.
- February 2012: 7.89
- February 2014: 4.10
- February 2016: 2.74
- February 2018: 1.74
So… as you can see, there aren’t a lot of homes on the market here in Louisville. We are still in Winter and a large number of new listings will arrive as the weather warms. But, this is a significant problem for the Louisville real estate market. Fewer listings mean fewer options for home buyers. This leads to higher prices and fewer transactions.
Not all of this is bad. Free markets are largely self-correcting. But I don’t recall a time when Louisville has seen inventory this low.
Now, the numbers I’m sharing are for all of Jefferson County. Things are not the same for every area or each price point. So, I delved deeper to see what else I could learn.
Here at Louisville Homes Blog, I have created housing reports for all of our Louisville MLS areas. You can see them in the drop-down menu above. This is an absolutely free service. No strings attached. Aren’t I a nice guy?
When you view a housing report for, let’s say, MLS Area 7 our Jeffersontown Louisville Housing Report you’ll get specific information just for the real estate in that geographic area. Why am I bringing this up now? Because by looking at the absorption rate for different MLS areas we can see how those locations and their home’s average prices affect both the speed of sale (days on market) and the absorption rate (housing inventory).
Here’s what I found.
|2017 YTD (Feb)||2018 YTD (Feb)|
|Average Price||Days on Market||Absorption Rate||Average Price||Days on Market||Absorption Rate|
Observations on Louisville Housing Inventory
Here my thoughts after crunching the numbers.
- It’s interesting that not every area saw their housing inventory decrease from last year to this one. I would have guessed they had! Most did, some by large amounts but Area 7 and Area 2 actually have improved.
- Generally speaking, lower-priced areas have lower absorption rates than higher priced ones. This makes sense as there are far more buyers for these affordable houses. The obvious exception is Area 1, our Downtown MLS area, that currently has the most housing inventory.
- All but two of our MLS areas are seeing homes sell faster in 2018 than last year. Again, this stands to reason as buyers are fighting over homes. They sell faster, often in their first couple of days. Homes that aren’t selling are most frequently overpriced and therefore sit on the market until the price is corrected.
- There isn’t much room to go lower in most of our MLS areas. There are less than 2 months of inventory in all but two of these areas. Unless inventory increases, Louisville home sales will start to drop off their recent record pace.
Going Forward into Spring
We will certainly see an increase in these absorption rates as the weather warms. More homeowners sell their homes in Spring and Summer than at other times in the year. Last year, the absorption rate rose to over 2.4 months worth of inventory from June through October before dropping to their current point.
If we can improve upon those listing numbers in 2018 we should be in decent shape. If not, look for Louisville home sellers to hold more power than ever.