How to look ahead

Dated: September 11 2021

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For anyone considering buying or selling real estate, the question of which direction the market is about to go is very interesting and important. Like Wayne Gretsky looking to skate where the puck is going to be, many people find historical real estate data frustrating. “It’s impressive that home prices in Southern California rose by over 20% in the last year,” they’ll say, “but what matters to me is what will happen in the next 12 months.” The data point that such forward-looking people want to see is the MSI.

The MSI, or “Months Supply of Inventory,” is the ratio of homes on the market and homes sold per month. For example, in a given neighborhood there might be 10 homes up for sale, and an average of 2 sales each month. 10 divided by 2 is an MSI of 5; these numbers suggest that it will take about 5 months for all 10 homes to sell. When there are more sales the MSI gets smaller; when more homes are on the market the MSI gets larger. The MSI shows whether buyers or sellers are under more pressure as they work toward their goals. When things are balanced between sellers and buyers the MSI will be somewhere between 4 and 6 months. An MSI of 7 indicates a buyers’ market, and an MSI of 3 indicates a sellers’ market. 

Right now, the greater LA metro area has an MSI of 1.9. That means that even though bidding wars have been less common in the last few weeks, the market is still favoring sellers, and home prices are still likely to increase in the coming months. Things may adjust if we see interest rates go up significantly, or when the eviction moratoria due to COVID-19 are lifted—but they’re not likely to move overnight from a strong sellers’ market of 1.9 all the way to a buyers’ market of, say 7. 

Instead of waiting for the market to make a big change, buyers would be smart to remember another Wayne Gretsky quote: “You miss 100% of the shots you don’t take.” 

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DAVID DUNLAP

As a residential real estate executive with an extensive background in corporate marketing, I am able to apply unusually strong skills in marketing communications, e-marketing, strategic planning and ....

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