Market Update June 3rd, 2024

The real estate resale market is currently experiencing a slight downturn, as evidenced by an increase in available inventory coupled with a persistent lack of buyer interest. A critical tool for gauging this trend is the contract ratio, which offers a comparison between the number of active listings (those not yet under contract) and the listings that are under contract. This ratio provides insight into the dynamics of the market by reflecting the balance of supply and demand.

Recently, there has been a noticeable decline in the contract ratio across all areas and types of properties, with the ratio falling by 15% from 54.5 to 46.1 over the past month. This decrease is significant when compared to the contract ratio of 77.0 recorded on June 1 of the previous year. The current ratio of 46.1 suggests a shift towards a balanced market. In such a market, buyers have a wide variety of options available, while sellers face increasing competition from other listings, more so than at any time in the last decade. This shift indicates that the market dynamics are changing, with implications for both buyers and sellers.

Despite the cooling market, pricing remained robust during the first five months of the year. However, the outlook for continued strength in pricing is uncertain, particularly as the market approaches the typically hotter months, which can influence real estate activity and pricing. Observations have already shown a leveling off in the average dollar per square foot ($/SF) pricing, following an unexpectedly strong peak earlier on May 8. This indicates that the earlier price gains might not be sustainable as the year progresses.

For those involved in the real estate market, whether buyers, sellers, or observers, the contract ratio can serve as a valuable metric for understanding specific segments of the market. By monitoring this ratio, stakeholders can assess whether the general trends noted above are applicable to the particular market segments in which they have an interest. This approach helps in making informed decisions based on current market conditions and trends, thereby aligning strategies with the most recent data available.

For clarity pricing overall is not crashing but instead bouncing between periods of buyer demand changes with the combination of mortgage rates increasing or decreasing. As I have stated in past updates, as of now there is no set up for a market crash based on the numbers. Of course, a black swan event can happen at any time like in 2008, however, this time around it does not look like it will be from the housing sector if there is one!

"Believe you can and you're halfway there."
-Theodore Roosevelt

Have a great week everyone!