Posted on Thursday, October 13, 2011
Inventories of one year are the theoretical equilibrium point where buyers and sellers have an even hand negotiating price and where we expect some price stability. Inventories of less than one year imply price increases and the emergence of a seller’s market. Could we really be in a seller’s market in Naples? After the price beating since 2007 are we back to the glory days of southwest Florida real estate? Let’s take a look at what is going on here, both statistically and from our observation on the ground here in Naples at NaplesBestAddressess.com.
Why does this inventory stuff matter anyway?
If you are a buyer or investor you need to know inventory trends. Are you going to be ultra aggressive and put in a low ball offer? Maybe not if low inventories imply rising prices – you might be facing a seller who will hold his cards tight. What if you are a seller in a high inventory environment? Start refusing offers or countering too much and you may find yourself riding an overall price trend down and regretting you did not take a prior offer. So … whether buying or selling, you should know your inventory.
All market segments are not equal – let’s look at price segments
In the Naples area this morning we have 6,081 properties for sale. Over the last 12 months we have sold 8,196 so our inventory is 8.9 months, less than one year, implying a seller’s market – but watch out. Most of the short inventory is in the lower price ranges due to a big buy up of lower end foreclosed property in recent months and the emergence of the buy-to-rent investors we have blogged about previously. For homes priced less than $300,000 this morning the inventory is only 6 months so we expect positive price support here. But in ALL other price segments inventories are greater than one year. In the $300,000 to $1,000,000 range we are at 1.16 years – essentially equilibrium. In the $1,000,000 to $2,500,000 range 1.44 years where we might expect downward price pressure. $2,500,000 and above we are at 1.64 years. So … viewing any market including Naples, Florida today know you inventory by segment. And that is not the complete picture either …
Sub-markets – another source of inventory difference
A gated community, and we have over 100 of them in Naples, is a good example of a sub-market. In addition, although not gated, some areas also form up sub markets – Port Royal, Olde Naples, Golden Gate Estates, and others for example. Each of these sub-markets have unique attributes, including inventory levels and expected up or down price pressure – so know your inventory by sub-market. For example the inventory in Golden Gate has dropped significantly from 2007 shoring up prices, while other sub markets remain stubbornly near 2 years or worse.
And What About This Shadow Inventory Thing?
It could be the banks are sitting on more distressed property and when released to the market these properties will pump up inventory figures and depress prices. But maybe not. In our recent blog we cited sources implying on a national level, based on delinquency rates, the shadow inventory thing is becoming less of a risk – but be careful it is out there to some extent. Very hard to judge right now.
So that is it for this morning, a greatly improved inventory picture in Naples, Florida over prior years but watch your price segments and sub-markets and keep an eye toward the shadow inventory picture.
What are you thoughts on this? Twitter me @mcgoebel or respond below.
