How to track the months of inventory on the market, and this is sometimes called the rate of absorption.
Topic – Talking tough
Mentor – Bernice Ross
- Know the facts
- Understand the type of market we are in
- Talk about the stats
Marketing Monday – The future of marketing property online – without the portals.
Kevin: Well, as you are probably no doubt aware, we will be going to Inman this year. Or not this year, next year. It’s in January 2019. It will be in New York. We’ll tell you more about that as the week progresses, and also the weeks between now and Christmas. But joining me all this week as our guest mentor, my very good friend from the States, Bernice Ross.
Kevin: Bernice, welcome to the show. It’s been a long time since you and I have talked in the show, although we talk very much off the show quite often. How are you?
Bernice: I’m doing great, and it’s great to be back with you on Real Estate Uncut. Very excited to be here today, Kevin.
Kevin: Of course, Bernice’s sister show in America, Real Estate Coach Radio, a very, very successful podcast. Follows a similar format to RE Uncut. And Bernice has been a guest on our show on many occasions. Bernice, one of the things that strikes me is that there are great similarities between our two markets, either side of the world. And I just thought it might be helpful for us to have a series this week on talking tough. In a declining or an accelerating market, how do you need to change the volume of what you say to buyers and sellers? But firstly, I thought, let’s get an insight into how we can determine where the market is right now.
Bernice: Well, the thing that I have found that works really well is to be able to track the months of inventory on the market, and this is sometimes called the rate of absorption. But as a rule of thumb, if there’s six months or less of inventory, Kevin, that means you’re in a seller’s market, with appreciating prices. So the prices are going up.
Bernice: When you get to six to seven months. I should say, it’s under six months, but you get to six to seven months, you have a flat market or the market may be transitioning from going into a seller’s market into a buyer’s market or a buyer’s market into a seller’s market. Then when you have seven months or more of inventory, then you are looking at the beginning of a declining market.
Bernice: Now, one of the things that’s interesting about these stats, Kevin, is that you’ll see the inventory will start to increase before the prices change. So I could see, in 2005 and 2006, when prices were still going up here in the United States, that the inventory was building. All the sign markers were there, that we are going to have a decrease in the market.
Bernice: So your listeners need to understand that the lag time between the inventory increase or decrease and the price can be six to 18 months. Now, in Los Angeles, in the early ’90s, we lost 33% of our value in just six months. The rest of the country had already plunged into a depression. We had kind of held out, held out, and then it went bam!
Bernice: And so we were losing about 3% a month in that market, so how do you have a conversation in that marketplace, where prices are declining? And if you don’t get your property priced right, the sellers are going to be chasing the market down. And every single month they stay on the market, their property is worth less. So the declining markets, you’ve got to get ahead. If the price declines, get your property sold quickly, because if you don’t, your sellers are gonna lose more money.
Kevin: Yes, it’s the difference between a seller’s and a buyer’s market, and it really is all about control. Wonderful insight there, into, you can determine where the market is. During the week, Bernice will be our guest and we’ll talk about the different conversations you can have as they relate to different times in the market. Tomorrow, we’ll look at the rate of absorption. We’ll take you deep into what Bernice has just touched on this morning. So really, working out where you are with the market.
Kevin: Bernice Ross is my guest all this week. Bernice, we’ll come back tomorrow. We will talk about the rate of absorption. Thanks again for your time.
Bernice: My pleasure.