At the Naples Area Board of Realtors quarterly market presentations, we occasionally refer to the real estate cycle. What is the real estate cycle? Let me try to explain.
A homeowner lists their property for sale. Listing the property increases the area inventory of real estate by one. The next thing you hope to see is a showing of the property to a prospective buyer. Hopefully, this buyer will write an offer on the property that will lead to a pending sale. This pending sale eventually will probably close and then the area inventory is reduced by one property. Simply put, that is the real estate cycle. I should point out that this closing will affect the median sales price calculation.
What does a veteran broker look for in the real estate cycle? If the pending sales are high, we know that in the next 30-60 days, we will have a lot of closings. So pending sales can tell a story of future closings.
Probably one of the most important numbers to look at is what is happening with the inventory number. Is inventory increasing or decreasing? Under the economic theory of supply and demand, an increasing supply with a withering demand could lead to prices going down. Why would this affect pricing? It is because sellers will probably reduce their prices in the hopes of attracting a buyer. On the other end, a declining supply with an increasing demand could lead to higher prices in the area. Under this scenario, sellers realize that they have more leverage and increase their price because they feel that buyers will pay more to purchase from a limited supply of properties.
In Naples, the real estate cycle is influenced by the season that we are in and more importantly, where we are in that season. We have three seasons in Naples. You have the traditional season which is Christmas to Easter. You then have the summer season, which is followed by the fall season. So, when we get close to Easter, you tend to have a high amount of pending sales. It is not unusual to have a lot of closings in May when our winter visitors are largely gone. This is because the Easter pending sales are now starting to close. This also usually will lead to the inventory being reduced by the sheer volume of closings.
Right now, many of us feel that we have a fairly balanced real estate market. The inventory of listings in the area is not too high and certainly not too low. The June pending sales look encouraging and the hope is that we will have a very good summer season. Any way that you look at it, our real estate cycle will be affected by the summer real estate activity. How will it be affected? We will just have to wait and see!
Mike Hughes, Vice President
Downing-Frye Realty, Inc.
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