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Three Cents Worth: The Supply-Demand Helix

[This week, Jonathan Miller, our resident market maven, brings a little biology to his weekly economic lesson via a supply-demand plot that looks like a DNA experiment. The pink line is listing inventory in actual terms (supply) and the green is number of sales (demand). Click on the image to expand.]

I thought it would be fun to plot the number of sales against listing inventory in actual terms, not by percent change and match them up. (Since last week I was informed that Curbed arrows are red, I have dubbed Miller Samuel arrows to be blue.) Note that because the Y-axis for each are not at the same scale (listings are about double that of the number of sales) I took the liberty of adjusting the scales so the lines roughly overlap (Edward Tufte, please forgive me). The idea was simply to illustrate that flow of sales and listings relative to each other. They seem to resemble a helix, the life of the real estate market (sorry).

As evidenced by the chart, the lines generally move in opposite directions. That is, when listing inventory rises, the number of sales falls. The results are (kind of) seasonal given the rise in the 2nd and 3rd quarters and fall as the number of activity kicks in. Available listing data only goes back 5 years, but it would be interesting to see if there were pattern changes, in say the 1990-1991 recession and the prior boom in 1985-1987.

You can really see how low inventory levels were at the end of 2004 relative to the prior several years. What has me concerned, however, is the significant drop in sales activity in the second half of 2005 and the sharp rise in inventory over the past year.
· Supply/demand: Listing inventory v. Number of Sales [MillerSamuel]