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Three Cents Worth: Market Loss is Your Gain

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[This week, Curbed graph guru and podcaster extraordinaire Jonathan Miller is talkin' inventory and discounts.]

This week I thought I'd expand on the inventory trending discussion from last week and explore the relationship between the net gain/loss of inventory as it relates to the listing discount. Translation: When the pace of sales begins to exceed the amount of inventory entering the market, what happens to negotiability between buyer and seller?

In this chart, I went back to 2001 by quarter and plotted the year-over-year gain or loss in inventory compared to the discount a property sells from its list price. The gain or loss is calculated by taking the difference between listings and sales in one period and comparing the difference to the amount in the same period the year before. It's another way to measure absorption. Listing discount reflects the spread between the list price at the time of contract and the contract price itself.

The chart supports the idea that there is more negotiability by sellers when the net gain of units to inventory (inventory-sales) rises, because there is more competition between properties. Common sense, really.

The surge in sales activity this summer served to reduce inventory to the point were the amount of new product entering the market was at parity with the amount being sold. This is likely why the listing discount has declined during 2009 even though it remains high (sellers are still detached from current market conditions). If the torrid pace of sales of this past summer were to continue, the listing discount would decline sharply and prices would begin to rise.

However, with unemployment and under-employment high and rising, and credit remaining tight, I suspect we will see a net gain in inventory over the next several quarters.
· Manhattan Gain/Loss In Listing Inventory vs. Listing Discount [Miller Samuel]
· Three Cents Worth archive [Curbed]