How the Home Inventory Mismatch Score Impacts Real Estate Markets

What is the Home Inventory Mismatch Score?

The home inventory mismatch score measures the types of homes buyers are searching for against the category of homes that are available on the market.
For example: “If 60% of buyers are searching for starter homes but only 40% of listings are starter homes, the market mismatch score for starter homes would be 20.”

Homes are Categorized Into 3 Groups by Price Range

In a recent report Trulia showed that the market is currently experiencing a general shortage of homes and that the homes that are available are not meeting the needs of the buyers that are searching. Here’s how Trulia broke the homes into categories and the results of their analysis are shown in the chart below.

Starter Homes
Trade-Up Homes
Premium Homes

On a national level, buyers are looking for starter and trade-up homes and are coming up short with available listings. This leads to a seller’s market in these types of homes.
Ninety-two of the top 100 metropolitan areas have a shortage in trade-up inventory according to Trulia. Premium homebuyers have the best chance of less competition and a surplus of listings in their price range with an 11-point surplus, leading to more of a buyer’s market.

Translation? Lawrence Yun, chief economist for the National Association of Realtors stated: “This leaves Americans who are in the market for a home increasingly chasing too fewer options in lower price ranges, and sellers of premium homes more likely to be left waiting longer for a buyer.”

What is a Normal Real Estate Market?

Historically, the inventory of homes needs to reach a 6-month supply for a normal market where home prices appreciate with inflation and buyers and sellers are on a more level negotiating field.
Anything less than a 6-month supply of homes is a seller’s market, where the demand for houses is greater than the supply which makes prices go up.

As you can see from the chart above, the United States has been in a seller’s market since August 2012, but last month’s numbers reached a new low. The National Association of Realtors latest Existing Home Sales Report was reported to be at a 3.6 month supply. Inventory was 7.1% lower than this time last year, marking the 20th consecutive month of year-over-year drops.

Supply of Homes in the St. Louis Market: What’s a Buyer to Do?

Real estate is local and can vary from town to town, zip code to zip code, and subdivision to subdivision. St. Louis County is reflecting the national stats with a 3.26 month supply of homes at the end of February. St. Charles County was at 2.78 months at the end of February. As you can see in the chart below which shows Months of Inventory going back to 2012 for St. Louis County supply and demand changes throughout the year.

The key thing for buyers is realizing you need to be prepared for competition this spring and summer season. Our recommendation is to start your homework now, know more about the market you’re interested in, and take advantage of our tools to inform you about market conditions. The related articles below will take you to those tools. Call 636-532-4200 for more information.

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