Hey, Tom… How is the Market?
I get asked this question a lot. Rather than rely for my answer on gut feel alone, I like to continually understand what is really going. There is a nifty tool for that; the sales ratio.
That sounds mathy, but the math couldn’t be easier. Sales Ratio is Pending Sales divided by Active Listings. No matter what market you are talking about, no matter the market segment within that market, the sales ratio sheds light on how well the market is absorbing inventory. It is a snapshot of the moment you happen to pull the numbers. (It can change the second after you gather the data.) For example: Let’s say there are ten actively listed homes meeting whatever criteria you query, and there are five pending sales. The sales ratio is 50%. Incidentally, a result of 50% signifies to us a market in balance, favoring neither buyers nor sellers.
Below 50% = Buyer’s Market (large supply of homes, low demand)
50% = Balanced
Over 50% = Seller’s Market (shortage of inventory, high demand)
The other day (12/1/08) I pulled the numbers for the North End of Tacoma, Central Tacoma / Hilltop, University Place and Fircrest. There were 746 active listings and 111 pending sales, for a 15% Sales Ratio.
To put that in perspective, two years ago there were 633 active listings and 187 pending sales, or 30%. Three years ago there were 424 active and 233 pendings, or 55%. I should note that within some price categories, that sales ratio exceeded 100%. At any given time there are hot price points, and slower ones. I’ll break down the numbers by price category later. For now, I wanted to lay the groundwork by defining the term so that I can refer back here later. From your gut, what price categories do you think are moving right now?