Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

24 responses to “NWMLS: Listings Flat in January”

  1. Kary L. Krismer

    I have a hard time seeing that we’re slowly moving to a buyer’s market with inventory levels so low. Inventory is critical to buyers.

    Also, the NWMLS is switching to calculating the number of months of inventory off of closed sales rather than pending sales. I’ve always used closed sales, and never understood why anyone would use pending, but using pending after shorts sales became prevalent was even more crazy.

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  2. Scott Tallman

    I agree wholeheartedly with Kary – I would not describe the current market as a buyer’s market or anywhere close to one. Perhaps there are pockets of King County where inventory is plentiful, but in the areas I’ve been looking in it is, and has been, thin. The center Seattle neighborhoods of Fremont, Phinney, QA, Wallingford, Green Lake and Ballard have very little inventory in our price range (which is above the high tier).

    What little inventory exists is either in poor condition (not interested in a major remodel or tear down) or IMO vastly overpriced. I say IMO, because due to the inventory shortage a lot of those homes go pending within days of listing and sell for at or above LP.

    I was hopeful coming in to the year that increasing Treasury rates and increasing inventory would enable us to buy a home in Q1 without feeling like we were overpaying or settling. Not off to a good start thus far. Will have to adjust my expectations and hope things pick up at some point this year.

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  3. Marc

    RE: Kary L. Krismer @ 1 – Agreed. This inventory situation is ridiculous. If it doesn’t improve prices have no option but to continue escalating at what should be unsustainable rates. Interest rates are too low and buyer demand too high for anything else.

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  4. eponym

    Just checking: I only see a single 2014 data point at the beginning of January, rather than a line showing the change over the course of the month. Is this the correct info?

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  5. softwarengineer

    RE: Kary L. Krismer @ 1

    Yes Kary

    Buying real estate today at “overpriced low inventory” is akin to buying stuff at an empty “picked clean” inventory grocery store before the big earthquake….crummy minimal stock selection and overpriced….

    You’re better off barterring with cash during the crisis…

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  6. softwarengineer

    There’s Been Many News Stories Out Lately About San Francisco’s “New Millenial Middle Class” With No Where to Live

    Many of these news articles include Seattle too. Here’s a 2010 archive article on San Francisco that still is true today:

    “….Average rent for two-bedroom apartment*: $2,737
    Median household income: $71,451
    Percentage of households within half-mile of supermarket: 84
    Woot… even more good news for San Francisco. Wow… check out that rent/income spread! The average rent is 46% of the median household income!

    Of course, that’s the average rent for a 2 bedroom. As we all know, the Bay Area is one of the greenest places in the world, and we’re all extremely concerned about our carbon footprint. Thus, most people live 4 to a bedroom to keep their footprint small – which means that 2 bedrooms are extravagant. Seriously, who needs 2 bedrooms? The average household size is 2 anyway….”

    http://www.burbed.com/2010/01/03/more-fun-stats-about-san-francisco-median-household-income-median-sales-price-average-rent/

    “Four to a bedroom” Seattle Bubble bloggers…..no wonder the average household income is $72K, when its per capita income per earner is $18K….this is the Seattle I hear about from the Millenials I talk to, who BTW, are the city’s home buyer population today….many with college degrees too.

    My daughter is enjoying her 3 bdrm in Kansas City for $600/mo mortgage….she did complain to me that she doesn’t “eat out” all the time like SWE, mainly because SWE has no Seattle mortgage noose anymore….

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  7. Erik

    “We’re not at a buyer’s market yet, but we’re slowly headed in that direction.” – The Tim

    There are only 100 more houses for sale in king county compared to last year. At this rate, 2019 will perhaps be a buyers market? 100 more houses for sale seems like a rounding error to me as opposed to real growth, but I guess technically a more inventory is more inventory if that is the method you use. There are less months of supply, which seems like a better way to measure to me. In that case, it would be more of a sellers market than last year.

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  8. softwarengineer

    RE: Erik @ 8

    Yes Erik:

    But the inventory would “blossom” to an equivalent 400, all we have to do is cram 4 to a bedroom in the limited new inventory.

    The buffoons living in those crammed conditions better eat out all the time like SWE too, God forbid you buy milk or beer and have the other gypsy hoards in the house steal it from you from the refrigerator…LOL

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  9. eponym

    Okey-doke. I had assumed that the tick-mark on the x-axis labelled “Jan” was Jan 1, so we’d be seeing one unit of change along the x-axis rather than a point. Been reading these graphs wrong all along, it seems, but I’ve got it now. Thanks!

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  10. ARDELL

    RE: The Tim @ 5

    That is to say…a single day in a single month?

    “Inventory” is Actively for Sale as of one day in each month and that is the last day (or the first day) of each month?

    Excludes all homes that came on market and went pending in between those two 30 to 31 day points?

    Do you have a count on how many listings go pending in less than 32 days? I think it may be nearly half?

    So the charts by design are excluding at least half of the “inventory”?

    I think that should be a disclosure…if it is the case.

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  11. Kary L. Krismer

    RE: ARDELL @ 11 – It’s the NWMLS data, which is only published once a month. So implicitly it is only one day, not that it would hurt to make that explicit.

    But in any case it’s not excluding half the inventory because at no point in the month were there 4,500 active listings. What be helpful would be a high point and low point for the month, sort of like when a bank statement has an ending balance and a low balance. But including all the properties that went active and then pending would serve little purpose. That would overstate the inventory available at any point ever.

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  12. whatsmyname

    With sales running at about the median number, and inventory at about 50% of the median number; it is hard to see how anything substantive is moving in the buyers favor – except the likelihood that their acquisition is going to be increasing in value soon. At these levels, and with these small percentage changes, YOY direction doesn’t mean very much.

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  13. ARDELL

    RE: Kary L. Krismer @ 12

    For quite some time the numbers have been showing, according to Redfin, 25% or so selling in one week or less and 35% selling in two weeks or less, see link for various Cities. Those were Seattle numbers.

    http://www.redfin.com/research/reports/real-time-fastest-markets/2013/market-speed-downshifts-again-in-july.html#.UvRtOvldUuc

    So I don’t think 50% selling between the two 30 day apart strike points is a far fetched number. That’s a lot of uncounted “inventory”.

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  14. Kary L. Krismer

    RE: ARDELL @ 14 – I check the numbers repeatedly through the month and I don’t think I’ve seen the active inventory over 3,500 or even 3,400 in the last month. Doesn’t Tim have a log of it here somewhere though?

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  15. Mike2

    I think Ardell’s point is that if you’re a buyer sitting checking Redfin a couple times a week, you will over the course of a month potentially see say 5,000 homes at one point or another. Anything good still seems to be moving fast, so there isn’t a a build-up in the baseline inventory number at any one point in time. If sales volume is increasing at close to the same rate that new listings are coming on, then the issue isn’t that there aren’t options for buyers but that buyers have to move fast, which are different things.

    Ultimately though I think that that static inventory numbers are the right thing to use in terms of looking at who the market favors even if there is lots of “uncounted” inventory. No matter how many new listings there are in a month, prices won’t have downward pressure until that baseline inventory number starts to move up, which will be an indication that listings are finally coming on at a rate (and price) that actually exceeds the current demand.

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  16. Kary L. Krismer

    By Mike2 @ 16:

    I think Ardell’s point is that if you’re a buyer sitting checking Redfin a couple times a week, you will over the course of a month potentially see say 5,000 homes at one point or another. Anything good still seems to be moving fast, so there isn’t a a build-up in the baseline inventory number at any one point in time. If sales volume is increasing at close to the same rate that new listings are coming on, then the issue isn’t that there aren’t options for buyers but that buyers have to move fast, which are different things.

    That would be a better point if there were say 3,000 sales in January, but there were only about 1,300.

    Maybe what we need is some sort of a ratio between closed sales and ending month inventory? I’m not exactly sure what that would show us, but if you had 3,000 active listings 12 months in a row (basically new listings keeping up exactly with pendings for a year), and 1,300 sales one month and 2,500 sales during another month, then arguably the choice of a buyer during the higher volume month would be greater, even with a constant amount of inventory. I’m not sure, however, that the higher volume month would be better for the buyer.

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  17. ARDELL

    RE: Mike2 @ 16

    Looking at the 30 pending transactions in Kirkland 98033, 14 of them came out of “inventory” within 10 days and most of those in less than 7 days. Pretty much in line with my “50% missing” from the inventory count. Counting only “inventory” on market as of a given day is less counting “inventory” as it is counting the sellers who come out at prices that are not realistic, and need a price reduction to sell.

    This is not merely due to market conditions, this is due to the advances in technology. When looking at standing inventory over a decade, you have to consider that 10 years ago we did not have up to 20 photos on display, instant alerts directly to consumers when a property comes on market, or good online map views that show the surrounding area without having to physically go to see the house. Not to mention all of the other online tools that shorten the time a buyer needs to make an informed decision about a house from the time it goes on market.

    Jumping to Seattle and the popular area of “705” i.e, Ballard, Green Lake, Wallingford, Phinney-Greenwood, etc. of the 78 current pendings a full 56 came out of inventory in 10 days or less and another 5 in 3 weeks or less.

    If you are missing 61 of 78 pieces of “inventory” in your count…well you can’t really call it “inventory”. You can’t call it “homes not sold at month end”…but you can’t call it “inventory”. You might call it “substandard or overpriced inventory”. :)

    (required disclosure: Stats in this comment are not compiled, verified or published by The Northwest Multiple Listing Service.)

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  18. Kary L. Krismer

    RE: ARDELL @ 18 – I don’t think you understand the term inventory.

    If a store sells 10,000 Seahawks Superbowl Champion hats in a week, that is the volume sold. With multiple deliveries per day they could have sold that volume having never had more than 1,000 hats in stock at any one point in time. The inventory in that scenario would have never been over 1,000 units, even though the sales were 10,000.

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  19. ARDELL

    RE: Kary L. Krismer @ 19

    Well…I don’t sell hats. :)

    If 61 houses came on market this month and all were available for people to buy…then they represent “inventory” to someone in the market to purchase a home. That they were not still available to buy on that one day at the end of the month, is of no never-mind to people buying homes…or people selling homes either.

    If the norm…due to technology…becomes that all decent homes priced well will sell in less than 10 days, then what was for sale on one day at the end of a month is not of interest to anyone, unless you are trying to count the number of homes that are hard to sell.

    If the dream is that there will once again be 10 good houses to go see on a Saturday, so a buyer can narrow that down to the top 3 choices and pick one of those three…well, those days are gone. I do think that some people are frustrated that they have to get up right now and see a house and make a quick decision because of “lack of inventory”. But I think that is at least somewhat due to technological advances. The home buying process being a leisurely pleasant buying experience is not likely to come back anytime in the next five years…if ever. The days when on Monday we can line up “a tour” of a dozen good homes for Saturday…are gone.

    The most frustrating part, and the part I think is particularly crappy, is the need to forego protective contingencies. But I don’t see that ending in 2014 either. Not for any of the areas where I work. YMMV.

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  20. whatsmyname

    RE: ARDELL @ 20
    I think you bring up an important point that buyers and sellers should be aware of, and it would maybe be helpful to have a velocity adjustor, or more simply to track the number of actually “new” listings each month as a companion number.

    However, the main value of an inventory number in this feature, (for me at least), is to see what it means in context of typical supply, the trend, and historical and seasonal patterns. For this you need a number that is consistent with the data we have for those past 14 or so years.

    If that doesn’t work for you, consider that inventory is a balance sheet item, a snapshot in time – like cash. I had some money last week that is gone. I will get some more money next week. Everything is under control. But when I go to the cash machine, the only thing that counts is what’s in there right now.

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  21. One Eyed Man

    RE: whatsmyname @ 21RE: ARDELL @ 20

    Ardell’s comment raises some very interesting market theory issues.

    Query: Is the historic measure of low inventory as it relates to supply, demand and price discovery, the real issue in the current market place? Or has technological change caused a form of market microcosm with an inherent market imbalance at the time a new listing comes on the market because there will almost always be a pool of immediately competing buyers for any single well priced property? Furthermore, is this mismatch of multiple buyers with a single seller warping the price discovery process by creating bidding wars and emotional feeding frenzies for new listings. And further, is this mismatch helping to push a regional YOY price increase (and perhaps distorting the pool of comparable sale price data)?

    Ardell’s comment about technological advancement and its relationship to “low inventory” raises some extremely interesting market theory issues. I don’t know if the guys at the UW graduate program in real estate read SB, but if they or their graduate students (and people like Schiller) aren’t working on this issue, they’re missing what might be a great graduate thesis topic and perhaps a great economics journal publishing opportunity. (Note, Ardell doesn’t say new technology is the only issue, and I don’t think I would agree that technology is the major culprit in the “low inventory” issue. But I do think its an important issue. I’ll give some reasons at the end of this comment, but this is great stuff from a market theory perspective.)

    First, a caveat: I’m not a trained economist. market theorist, or anything else. I’m just a free thinker with a background in law and real estate with enough free time to be dangerous. But then again, the established experts don’t always see the true picture. As history tells us, the Church thought they were the experts on the shape of the Universe when Galileo started looking through his telescope.

    Any analysis of the technology change probably requires an understanding of what a market is. My answer for purposes of this discussion is that in many ways a market is a forum where trading takes place within the bounds of a set of rules to establish the mechanics for how the trade is accomplished (i.e. the contracting and closing process), including an enforcement (legal) system to cure violations of the regulations. Rules and regulations are necessary to insure that the trade will meet the expectations of the participants. Without regulation, a market would be less vigorous because it couldn’t guarantee that the expectations of the participants would be met. For example, pretty much everyone would agree that you need rules in a market to keep coercion (threats of violence) from being part of the consideration in the trading process, and rules against false representations to keep out fraud. If you don’t have regulation to keep fraud and coercion out of the process, participants would be discouraged from participating in the market and the market place would be less efficient and less vigorous. Note that markets can also lack efficiency and fail to properly allocate supply and demand due to externalities (i.e. costs and benefits of a trade that are not captured and properly allocated between the participants in the trading process) but that’s a separate issue.

    Now, moving to Ardell’s comment on technology and the increase in the speed of buyer’s awareness of properties and readiness to make offers. The pace at which buyers and sellers are matched in a trade can potentially cause a market imbalance and affect price in the market place. In the stock market, take the example of the “flash crash” a couple of years ago. Electronic trading is thought to have caused a very short term trade imbalance (perhaps only a few seconds?) where sell orders (from electronic program trades and perhaps stop loss orders) caused commitments to immediately sell to far outweigh the commitments to immediately buy. This resulted in an unintended short term crash in the price of certain securities. Hypothetically, some sellers with stop loss orders to sell at say, $50 per share, got their sell orders filled at say, $5 per share, because there were few if any standing buy orders when the falling price triggered their sell order to be executed. An inventory trade imbalance was created by the speed of electronic trading at a pace that didn’t allow from realistic price discovery. The contracting mechanics of the market place didn’t meet the expectations of the market participants and had to be fixed to slow down trade fills and search other exchanges so that expectations could be more appropriately met.

    Let’s now move from that example to the real estate market. First, its probably necessary to understand that one of the legal rules of the real estate market place is that listing a property is not an offer to sell at the listing price. Its merely a request to solicit offers. The listing party is not bound to sell the property at the listing price (although they may be bound to pay a commission to the listing agent if the agent procures an acceptable offer at the listing price). The significance of this fact is that sellers aren’t committed to sell at that price and can entertain competing offers above the listing price, or unilaterally increase the price above the listing price. This may now give the seller an advantage in the price discovery process when coupled with internet marketing technology.

    Prior to the internet, buyers discovered individual homes to buy thru agents searching the new listing book when it came out (was it weekly?), and thru print ads like the Sunday want ads and open house ads. Commonly these ads didn’t have the psychological excitement of great pictures to help create buyer enthusiasm. The process generally took longer because information transmission took longer and people didn’t become emotionally attached until they actually visited the house, perhaps a couple of weeks after it hit the market. This arguably means there might have been less chance of immediate multiple offers before a contract was formed. This would have decreased the likelihood of bidding wars and buyer feeding frenzies for a particular property.

    The speed of information availability has now created a situation where a waiting group of buyers immediately converge on a new property, thus increasing the level of buyer competition for the most desirable properties and the risk of bidding wars between buyers. The seller isn’t committed to sell and might chose to wait if an offer quickly comes in for a pool of competing buyers to assemble in a feeding frenzy. Buyers sometimes contend with this environment by using escalation clauses and consider waiving what were formerly standard contingencies in order to deal with what is arguably a technologically created competition among buyers. Emotions, including frustration, may cause buyers to pay a premium rather than risk losing the house and going back to waiting for new listings.

    These factors may mean that the pace of new listings (relative to current sales volume) is now more important than the pool of total listings, and that competition in the marketplace is largely concentrated at the point of each new listing rather than spread over the pool of listings. This concentration of buyer activity might cause unanticipated distortions or aberrations in the price discovery process for individual properties and potentially the data pool for the market place as a whole. In effect, the pool of inventory may now be less relevant to the market than the pace of new listings and the size of the unmeasured pool of waiting buyers.

    Despite the above issues, there are a number of reasons one can argue that technological changes are only a small part of the current price push and old fashioned low inventory is still a big component.

    First, pure low inventory has accounted for price moves greater than the current 13% YOY. Prior to the current technology revolution, in 1988 and 1989, Seattle saw extremely low inventory of available homes, resulting in bidding wars and YOY price increases in the 20% range.

    Second, if it takes on average one week for a desirable new listing to go under contract where as it took 3 weeks on average prior to internet technology for a desirable new listing, that would only add 2 weeks of additional inventory to the inventory pool. And two weeks additional inventory isn’t enough to bring inventory totals up to historic norms. Note that this analysis ignores the psychological distortion of the marketplace potentially caused by pitting multiple buyers against each other immediately as new listings hit the market.

    Third, even though new construction has increased, in most markets it’s my understanding that it hasn’t increased to the rates of the pre-bubble and bubble burst norms of the early and mid 1990’s.

    Fourth, increasing transportation congestion and costs (along with other location related issues) probably increases the demand for housing in the areas near job centers (i.e. Seattle, Kirkland, Bellevue, Redmond) and this regionally related demand may be more of a factor than new technology in the home search.

    In conclusion, I generally agree with Ardell’s observation. I think the issue is worthy of analysis and investigation and definitely requires a level of awareness by buyers and sellers of the change in the marketplace. Although I don’t see it as likely at this point, it may in the future require a change in the market mechanics or regulations, just as the flash crash required changes in the operation of the securities exchanges. For example, just as sellers now have to give a disclosure statement, maybe at some point, regulation will require that all purchase agreements contain an inspection contingency so that buyer competition for new listings won’t put buyers in a position where they feel they must drop the inspection contingency rather than risk losing the property.

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  22. Ira Sacharoff

    RE: One Eyed Man @ 22
    Technology isn’t causing housing demand. It may be fanning the flames in a hot market, feeding the frenzy. But the current economy in the Seattle area is pretty good, and there’s a lot of people out there who want to buy houses. demand is strong. The effect, however, is the same, whether the inventory is truly very low, or whether it’s the large number of buyers pouncing via the help of technology. If something unlikely did happen, a downturn in the economy that had a particularly strong impact on Microsoft, Amazon, and Boeing, how fast buyers could view listings would cease to have impact.

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  23. One Eyed Man

    RE: Ira Sacharoff @ 23

    I don’t disagree with you Ira and I don’t think from you comment that you necessarily disagree with Ardell or with my interpretation of her comment. I don’t contend that aggregate demand is being increased by technology. What I might disagree with you on is whether technology has increased competition among buyers for new listings in a manner that makes monthly inventory numbers a less relevant statistic. Ironically, the result of shortened timing and the increased competition may have many of the same effects as an increase in aggregate demand without an increase in the total number of buyers in the market. And the numbers on month end inventory may for many potential buyers represent houses that are to a significant degree currently irrelevant.

    Demand for the stock in the flash crash was insufficient to meet sell orders for perhaps a few minutes, but it wasn’t down sufficient to justify a 50% price drop when viewed over the course of an hour. A change in the speed of order placement caused by automated trading caused a market imbalance. Sell orders were concentrated in a short time span by automated trading and a precipitous price drop resulted as if demand had actually dropped. Similarly, the increased speed at which the general public can find and evaluate listings has arguably concentrated competition for the new listings even though aggregate demand may not have increased. That increased competition may be influencing potential buyers to make offers more quickly and on terms more favorable to the sellers of new listings.

    The timing change in real estate information available to buyers may be exaggerating the effect of the current level of aggregate demand by focusing an historically greater number of buyers on a few new listings and in a shortened period of time. Many if not all buyers have evaluated current inventory on line and are just waiting for new listings. Listings in inventory other than new listings are irrelevant to them. Furthermore, when a new listing does come on line, the pool of buyers capable of getting sufficient information on the listing to make a buying decision within several days is probably much greater than it was 20 years ago. That collapsing of the time frame may be increasing the number of buyers competing immediately for new listings with an effect in some ways similar to an increase in aggregate demand.

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