How do you really know if now is a great time to buy? That’s a question I was asked a few days ago by someone who is looking at the real estate market in our area. They’ve been following the prices but also worried by negative, conflicting reports in the news.
Picking on Florida real estate is now a sport and sadly most of the time we, Southwest Florida, get lumped in with the row of vacant towers on Miami Beach and other points of slaughter still digging out from under their inventory.
So, how is a buyer supposed to know when the best time to buy is? As a buyer you might have educated yourself on the area, the closing procedures and the pricing but you want to know that you’re not “getting in too soon.”
The pundits will tell you that you can’t gauge the bottom and that the market is like a pendulum swinging, you can’t tell it’s passed the mid point at the bottom until it’s already begun to swing upward. What they don’t tell you in the “now is a great time to buy commercials” is how to calculate if it’s really is a great time to buy in your city or neighborhood of choice.
Inventory and location are the two factors to consider when deciding whether or not to purchase real estate. For the sake of the buyer that was in a quandary about moving forward, we did a couple of simple calculations to determine how much inventory was in the neighborhood they were considering.
It’s called an absorption rate and it determined, for this buyer, that there was six months of inventory in the community. Six months is a balanced market, by the way. It was only a few years ago that there was 17 years of inventory in this very neighborhood, which drove prices down. Yes, you read that right … 17 years.
The current six month of inventory is actually misleading, and not in a bad way, because there are really only three active units and a pile of pending sales not yet closed which is creating illusion that there is more inventory. A typical buyer would have not suspected that the values in that neighborhood have actually risen 9 percent over the last year due to the lack of inventory.
Since its summer and I had a little time on my hands and it got me thinking about the real estate market as a whole. Just for giggles I did a broad stroke of the Southwest Florida brush and calculated the inventory for single family homes in the multiple listing system.
The total came up to about 12 months of inventory which really shouldn’t mean a whole lot to you unless you’ve been watching the market and knew that two years ago there was a little more than 26 months of inventory.
Bad news sells so you probably wouldn’t ordinarily hear about that sort of market improvement. If you were expecting news like half of the real estate inventory being absorbed to be trumpeted by television media portals we should have emailed it to Sarah Palin so they could have at least discovered it.
Keep in mind that lumped in that 12 month pile are likely neighborhoods with far more inventory than 12 months and even some with less. The point is that you need to get those hyper local figures from your real estate agent prior to even placing an offer.
Finding out existing inventory and the local absorption rate for the city, the neighborhood or even the street should be a step in your decision making. If your real estate agent can’t do those figures for you, you’ve probably got the wrong real estate agent.
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Chris Griffith is a real estate agent at Downing-Frye Realty Inc. in Bonita Springs. If you have a question about local real estate or Bonita Springs, e-mail her at chris@LifeInBonitaSprings.com.