The INHABIT INDEX: How to Know When It’s a Buyer’s or Seller’s Market?

22 10 2007


First it’s important to know the definition of both market conditions. In a sincere attempt to avoid insulting anyone’s intelligence, a buyer’s market is characterized by supply outpacing demand. In other words, there are too many homes on the market for the number of buyers. Typically, we see the following in a buyer’s market: 

  1. Flexibility in negotiating price.
  2. Added seller concessions (closing costs, repairs, etc.)

Conversely, a seller’s market is characterized by an insufficient level of supply for the ready, willing and able buyers. In a seller’s market, it’s common to see this happening: 

  1. Multiple offers.
  2. Shortened time on the market.

Regardless of when or where you want to move, generally the market is trending in one of two directions defined above. Yet, it is possible for the market to be stagnating in transition, which is all the more reason buyers and sellers need to anticipate which way the market will move. More specifically, you should have a clear understanding for which direction the particular neighborhood that you’re searching or selling in is trending. The real estate market is not monolithic. Some neighborhoods outperform others (see below).

Markets constantly fluctuate. Unfortunately, by the time we read about it in the paper, it’s already history. So apart from negotiating transactions on a regular basis how can you remain informed and know if Austin is presently a buyer’s or seller’s market? How can you know which way things are headed? (faint drum roll) ….Behold, the INHABIT INDEX. I developed and routinely update this index for my clients to easily gauge how supply and demand is faring in the Austin, Texas real estate market. Here’s how it works.

Essentialy, the index illustrates the current rate of sales against the current level of inventory for single family homes. Home prices in Austin, and any other city, are simply a function of supply and demand. By studying the balance between the two variables it’s possible to first, determine if we’re in a buyer’s or seller’s market, and then be better suited to anticipate how future prices may be affected. 

For example, if the INHABIT INDEX value is greater than 30%, then market conditions will generally favor the seller. Otherwise, when the INHABIT INDEX is at a value less than 30%, market conditions will likely favor the buyer. Usually, when a soft market is saturated with too many listings or if a hot market is efficiently turning over inventory for an extended period of time, prices tend to adjust accordingly. Here’s the summary:

> 30%  → Seller’s Market

< 30% → Buyer’s Market

I use the chart up top as a bird’s eye view, and the latest MLS/ABoR data tells me Austin is now a buyer’s market. The index will give even more insight when I zoom in to a particular area or neighborhood. Buyers that are now ready to begin their home search still need to be aware certain neighborhoods may not have shifted into the buyer’s zone. For example, look at all of Austin compared to the hottest areas this September.

   Location         INHABIT INDEX     Est. Days on Mkt.

  1. Austin                           17%                               60

  2. MLS N                           43%                               33

  3. MLS 10N                       34%                               34

  4. MLS 10S                        33%                               30

MLS area N, 10N and 10S are above the 30% threshold (seller’s mkt) and are seeing a very short exposure time on the market. I belive much of the attraction to these areas can be attributed to their affordability (median prices $170,000-188,000).   As I mentioned above, the INHABIT INDEX is a tool that I provide my clients to help them easily gauge the overall market condition. Keep checking back as I routinely update it and will share my findings in future posts.

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4 responses

27 11 2007
INHABIT INDEX for October 2007 « INHABIT AUSTIN: real estate blog

[…] As I mentioned in an earlier post, the INHABIT INDEX is a tool I developed to easily gauge if overall market conditions are favoring the buyer or seller in the Austin area. If you want to know how the index is calculated check out The INHABIT INDEX: How to Know When It’s a Buyer’s or Seller’s Market.  […]

17 01 2008
The INHABIT INDEX for November 2007 « INHABIT AUSTIN: real estate blog

[…] Related Post :: The INHABIT INDEX: How to Know When It’s a Buyer’s or Seller’s Market. […]

27 02 2008
Inhabit Index for January 2008 « INHABIT AUSTIN: real estate blog

[…] Related Post: The Inhabit Index: How to Know When It’s a Buyer’s or Seller’s Market […]

17 01 2009
INHABIT AUSTIN: real estate » Inhabit Index for January 2008

[…] Related Post: The Inhabit Index: How to Know When It’s a Buyer’s or Seller’s Market […]

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