Where is the Bottom of the Real Estate Market?

The inventory of homes for sale at the current sales pace is the inventory-to-sales ratio and the significance during times of oversupply is that it gauges both current supply and demand. This important but often overlooked market indicator is “the one to watch”, real estate professionals and consumers alike simply have to “follow the I/S”, as its return toward more normal levels will indicate that the real estate market is poised to move beyond its current market correction. The market is considered in equilibrium when the supply of homes is approximately six months; even seven months is not considered a remote reason for concern.

In simple terms, Baldwin County inventory has far exceeded consumer demand since October 2005, when it hit double digits (10.6 months) for the first time since March 2003. Moving forward under current market conditions, at least three consecutive months below 8.5 months of supply could provide a sign that the market is beginning to move back to equilibrium.

One of the most interesting aspects of I/S is the way it indicates the top and bottom of the market cycles. For example, in January 2008 Baldwin County’s I/S was 41.1 months. This is the highest I/S has been since stats have been kept here (20 years). Baldwin County had the bottom of its real estate market in January 2008. However, Baldwin County is still in a strong buyers’ market situation, and you can still get a good deal. Baldwin County is moving towards equilibrium with I/S being at 23.0 months in June 2008.
Do you remember the summers of 2004 and 2005? The I/S was under 5 and properties were flying off the market, we had bidder wars on a regular basis and it didn’t matter how much you listed a property for…it was certain to sell. Notice how the numbers changed after Ivan (Sept 2004) and Katrina (Aug 2005).