FOCUS: Real estate prices rising in sellers’ market

By Doug Holmes, contributing editor  |    Charleston real estate has recovered nicely from the torture of 2008-2011.  Back then, the country was in recession and a lot of it was due to the real estate crisis caused by banks giving money away too freely.  It became very difficult to sell homes and buyers had it all their way.  We were mired in a buyer’s market of unprecedented proportions.  It’s interesting to compare months of inventory for that market to months of inventory for the market today.

Months of Inventory (MOI) is the number of months it takes to sell off all of your current inventory based on the recent sales pace.   This is true for any retail business.  In real estate, it is fairly well known that the golden rule for a healthy, balanced market that doesn’t favor either the buyer or seller is 6 MOI.  More than 6 MOI indicates a buyers’ market with too much supply and not enough demand.  Less than 6 MOI indicates a sellers’ market with too much demand and not enough supply.

In the 2004 to 2007 period, we were deeply in a sellers’ market with less than 3 MOI.   When this happens, supply is low and demand is high and that causes prices to rise.  Prices rose sharply and that ultimately caused supply to increase and demand  decreased and we slipped into a buyers’ market in 2008.  MOI quickly rose to 9 months and gradually got worse through the recession and the housing crisis.  Eventually, in 2011 we saw 18 MOI and prices had fallen significantly.  We were deep into the buyers’ market and sellers had a very difficult time selling their homes.

Now that the recession has ended and the government has helped supply us with ridiculously low interest rates, the buyers are gobbling up homes at an incredible pace.  The huge increase in demand has reduced supply and we are back into a sellers’ market with about 4 MOI.  Some areas have less than 2 MOI.  With this, of course, comes an increase in prices.  Our median price of $235,000 in Charleston is much higher than it was at the peak in 2007 of $210,000.

This scares some and they wonder if we are in another bubble about to burst.  Only time will tell.  However, one big difference now is the difficulty at obtaining mortgage money.  It was “oh so easy” back in 2004 to 2007.  It’s pretty difficult now.  Most of us in the real estate business hope that will  keep us from having another major correction.

Doug Holmes is a local Realtor with Keller Williams. He also provides markets analysis for a fee to several hundred local real estate agents. He has a bachelor’s degree in physics and math from the College of Charleston as well as a master’s degree in math from the college, where he still teaches a couple of statistics classes in the fall. Visit his website here: www.CharlestonHolmes.com