The real estate market is one of the bright spots in our economy. Here in middle Tennessee, we see that the majority of people in the housing market are fortunate enough to be in industries that were not heavily affected by the Covid-19 induced recession. So, more people are moving locally and entering the market for the first time. We also continue to see corporate relocations to Tennessee which means employees who move here with those companies need homes. Additionally, interest rates are at historically low levels (a recent client VA loan was quoted at 2.25% for a 30 year fixed loan).
When you put all of these together, you create an increased demand in housing. In fact, since July, we have had more home sales per month than last year. This has put a strain on an already tight market. Our area has had low inventory for several years now but inventory is lower than ever. New construction cannot keep up and sellers are not entering the market at the same rate as before the pandemic hit.
To help explain where we are at, let’s look at our situation as a math equation. The real estate market is labeled as a seller’s market, a balanced market, or a buyer’s market. To determine which market an area falls into, you simply take the amount of home sales for the past 12 months and divide that number by 12 giving you the average number of homes sold each month. Next, you look at how many homes are currently on the market. When you divide the number of homes on the market by the average number of homes sold, you can estimate how long it would take to run out of homes should no new homes come on the market. A seller’s market is when housing inventory is less than a five-months’ supply. A balanced market is six-seven months’ supply. A buyer’s market is when the inventory is at an eight months’ supply or higher.
Using Williamson County as an example:
- # of closings for the last 12 months = 6239
- 6230/12 = 520 closings per month on average
- # of homes currently on the market = 662
- 662/520 = 1.27 months’ supply
Here is a graph of Middle Tennessee Counties showing the average number of homes sold each month in blue and the number of homes currently on the market in orange. The number at the top of the bar graphs is the home supply in months.
When you compare the current supply of just over one month to what used to be our “normal” supply of two-three months, you can see why we are feeling the strain to such a great degree right now. We are seeing more multiple offers resulting in more homes selling above asking price. I know this can be discouraging for many buyers but just keep in mind that with interest rates this low, buying power is at an all-time high! A reduction of just one percent in the interest rate equals a $200 reduction in the payment on a $350,000 mortgage. So even in this market there is good news for both buyers and sellers.