Are We Seeing An Inventory Shift?

Inventory is now declining in key markets.

Earlier in the year, inventory was rising in Florida and Texas, but that inventory is now being consumed.

Are we seeing the same thing in the Greater Boston and Greater Providence markets??

It sure looks like we’ve hit our seasonal peak… so I can confirm the headlines being bandied about nationally.

But, as always, what does this mean for our Seller and Buyer clients?

The drop in interest rates should have spurred more buyers to dip their toes in the pool, right?

Unfortunately, there is no direct link between interest rates and purchase contracts. There is a corollary, for sure, but no direct link.?

Rates dropping does not mean purchase contracts will increase.

The key concern is still affordability.?

Our everyday expenses have not gotten cheaper. Sure, price growth has slowed down (food prices have only grown 1% in the last 12 months), but it’s the sum total of everything.?

When I look up data to identify what the root cause is, surprisingly I find all sorts of articles and charts that tell me that wage growth is outpacing inflation.

But that’s misleading… because I’ve yet to meet anybody who’s telling me that inflation isn’t a problem anymore because they’re making more.

So let’s look at housing affordability, instead.

As the chart below shows, even with a drop in rates the median home is out of reach of the median income earner… and the lines are each going in the wrong direction… further apart.

One may think that this chart will result in inventory increasing. The reality is I think the affordability factor is what did drive a rise in inventory… but the people selling still need an affordable place to go to.

If they’re moving out of the area or into something smaller, those homes will still get listed. But everything else? Rates aren’t low enough for some current homeowners to give up their 3% or 4% rate to move to a 6.35% rate.

And that will be the limiting factor to continued inventory growth.

The inventory that is on will slowly get consumed without equal or greater quantities of inventory backfilling the sales.

I, personally, think the magic number for more sellers to feel comfortable selling will be a rate of 5.5%. I can’t tell you specifically why via any sort of data analysis. It’s just a gut feeling. I think a lot of sellers are holding out for a peak in order to squeeze as much equity as they can from their current residence before moving on.

Why?

Let’s compare what would have happened to a fictional $10,000 invested into an S&P 500 Index Fund in Jan 2021.

If you invested $10000 in the S&P 500 at the beginning of 2021, you would have about $15,280.18 at the end of 2024, assuming you reinvested all dividends. This is a return on investment of 52.80%, or 13.21% per year.

This lump-sum investment beats inflation during this period for an inflation-adjusted return of about 31.64% cumulatively, or 8.38% per year.

Source: https://www.officialdata.org/us/stocks/s-p-500/2021?amount=10000&endYear=2024

What have home prices done in the same timeframe?

The median price of a home in Plymouth County in Jan 2021 was $450,000. On Sep 1st, 2024, that same median home is worth $625,000. That’s an ROI of 38.89%.

38.89% is greater than the inflation-adjusted 31.64% return on your investment in the stock market.

Right now, it’s more advantageous to wait.