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Considering Months of Inventory, or the Absorption Rate, to Evaluate the Tucson Real Estate Market

June 10, 2007 | By Kelley Koehler | Filed Under Market Reports 

I’ve been thinking about using months of inventory (or the absorption rate) instead of days on market as a more reliable market status indicator.  Given that homes can be withdrawn and relisted to “reset” the days on market counter, we know that DOM isn’t the best figure for evaluating Tucson’s market. 

Months of Inventory makes sense to me: that’s the number of months it would take to sell off all the inventory.  There’s a myriad of ways add context to this figure, but let’s keep it simple for now.

Here’s what I’d like to learn from months of inventory:

• If all price brackets are “Buyer’s Markets” or if some price ranges are still balanced
• If certain areas of town have a higher glut of inventory
• How Months of Inventory has changed over time.  We’ll save this one for later.

If we wanted to take this a step further, we could break down price brackets per area of town.  For example, we could show numerically that the market for a $300,000 house in the North would probably be a Seller’s market, while the market for a $300,000 house in Central Tucson would favor the Buyer.  Wouldn’t that be a fantastic way to help a Buyer understand why they would have to compete for the $300k house in the North, instead of having a large selection of homes in the same price range in Central Tucson?

Let’s see what Months of Inventory tells us.

Note: I’m only considering Single Family Homes, and only in the Metro Tucson area.  I’ve excluded all of the outlying areas from these numbers, as those are markets unto themselves.  I’m using the last 30 days of sold data, and I’m not including Active Contingent or CAPA properties, as they are generally not shown nor considered when a Buyer looks for a house.

I calculated Months of Inventory per price bracket, in this chart.  The price point listed in the chart is the upper end of the bracket.

 

I expected to see slower sales (that is, a higher months of inventory figure) for the higher price brackets, but was really blown away by the months of inventory in the under $200k market.  The price bracket between $100k and $200k has 4.4 months of inventory, which is fairly balanced, and good news for Sellers in that price range.

In general, anything under 2 months is considered a Strong Seller’s Market, 2-4 months would be a Seller’s market, 4-6 months would be considered balanced, 6-8 months would be a Buyer’s Market, and anything over 8 months would be a strong Buyer’s Market.

I calculated a citywide figure as well: 6.7 months of inventory.

Let me restate that for emphasis.  In the larger metro area, ignoring the outlying areas, we’re between 6 and 7 months of inventory.  Which is just tipping into being a Buyer’s market.  I expected a much, much higher number here.

I was really surprised by that number for one very good reason: We calculate months of inventory on a slick little graph on the home page of Housechick.com.  We use the total number of listings and sales in MLS, regardless of type, and that Months of Inventory figure was 8.1 months for April.  I’m going to have to break out land, townhomes and condos, and manufactured/mobile homes, to see what type of property is making that total figure so high.

Let’s look at Months of Inventory per Area of Town, and see what is what.

Here we see a glut of inventory in Southwest.  This area boomed with new construction about 2-3 years ago, and there’s a lot of investors selling off their properties here.

I’d rather see months of inventory per area broken down into price brackets, so we’ll keep the comments short here.  Central, East and South Tucson look to be selling their inventory most quickly, with the Southwest, West, and Northwest selling at the slowest rate.

So that’s where we stand now for months of inventory for the local Tucson Real Estate market.  We’ll be working with this figure a bit more when the May stats are released by the Tucson MLS.

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Other Information That Might Be Helpful

• Tucson Real Estate Market Overview – Fun with Charts (September 2, 2009)

  The whole story of what has happened to the Tucson housing market in one glance. The black bars show months of inventory, or absorption rate. Basically, the months of inventory is the rate at which homes are selling, the speed of the market. You calculate months of inventory by dividing the number of homes available for sale by the number that sold. So if there are 5 months of inventory, it means that if no other homes come on the market, at the current rate of sales, it’d take 5 months to sell all those homes.

• Tucson Market Statistics and Report – June 2009 (July 13, 2009)

  The Overview via Podcast:

  Download Tucson Market Stats for June 2009 here (MP3) or subscribe to the Tucson Market Reports podcast here.

  The Quick Numbers:

  Single Family Home Average Sales Price: $225,105
  Single Family Home Median Sales Price: $175,000
  Single Family Home Units Sold: 877
  Single Family Home Months of Inventory: 6.3 months

  Townhouse Average Sales Price: $166,897
  Townhouse [...]

• Tucson Market Statistics and Report – November 2009 (December 7, 2009)

  Hello November! The holiday season is upon us – bringing the yearly slow down in home sales in Tucson. If you look at the seasonal trends in the number of homes sold in Tucson citywide, you can see we traditionally peak around May and have slow winter sales. I don’t expect this winter to be any different. Sure, there’s a tax credit that might be an incentive for some, but there’s no urgency to move over the holidays for that – the deadline isn’t until the end of April 2010. The average sale price dropped below $200k again, for the second time in 2009, coming in at $195,721, while the median is basically unchanged for the year. Compared to the start of the year, the average sales price is down about 10% while the median sales price is the same. (Okay, it’s $250 less. I’m calling that insignificant.) Since the average is heading down and the median is holding steady, that tell us the lower end of the market is still moving and the higher end luxury homes are not.  There are more sales in those lower price brackets, enough to keep the median fairly steady, while the lack of sales of higher priced homes brings that average down. The number of homes for sale were down a tiny bit, pending sales were down, and sales were down in November. Pending sales went from 2060 to 1747 – but we expected that, right? Remember, when that tax credit first came out, you had to close by the end of November. It would make sense that there’d be a huge push to close those pending sales by the end of November. Overall, sales were down 55 units, to 850.

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