Considering Months of Inventory, or the Absorption Rate, to Evaluate the Tucson Real Estate Market
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 Given that homes can be withdrawn and relisted to “reset” the days on market counter, we know that DOM isn’t the best figure for evaluating Tucson’s market.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.
