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August 16th, 2011 3:59 PM by David W. Welch
Supply and demand for real estate in Orlando* is pretty close to balanced based upon prices. Basic economics suggests that if demand is too great prices will rise to balance supply and the converse is true also. If you look at Orlando real estate statistics, it appears this balancing act may be a little off, so I looked a little more closely. You see, currently there are 7,482 homes for sale in Orlando which represents only a 3.6 month supply of inventory in light of the 12,558 sales in the first six months of this year. The supply of homes available is generally considered to be balanced when there is about a six month inventory available. Given the apparent imbalance, prices should be going up pretty significantly. Year over year prices are up for the first time in years as of July's numbers, but only by about 7.6% as reported by the Orlando Regional Realtor Association.
With such an imbalance, I would expect prices would have risen even more. With sales averaging about 2,100 per month the available inventory of homes for sale has continued to decline, but why haven't we seen prices climb faster? Prices are quite a bit higher than the beginning of the year, with the median increasing more than 23%. Typically, we see this pattern in our real estate sales here, so I am more focused on the 7.6% increase in prices compared with the same time last year. I believe the culprit is the huge number of short sales that are clogging up our pending sales. Currently, there are 8,781 sales with contracts pending; meaning there are 4.2 months worth of sales tied up. Of these contracts, 6,488 or nearly 74% are short sales. Short sales have a very high failure rate here for various reasons. What I have observed is that about 70% of these contracts do not close.
That means, we can expect about 4,542 of these pending sales to come back on the market in some form. They may become active listings again, or they may be foreclosed by the banks and re-listed sometime down the road. I do not think it is a coincidence that this represents about 2.2 month supply of inventory. When you add it to the 3.6 months of active listings, the resulting 5.8 months would suggest a balanced market.
* A brief explanation: I usually report the sales statistics for Orlando Realtors®, but for this post I am looking at real estate sales statistics for Orange and Seminole Counties. The Orlando Regional Realtor Association reports their statistics based upon their member numbers, so I try to match that same reporting on my blog. For this discussion, I wanted to see what the true geographic supply and demand numbers are for the primary Orlando markets of Orange and Seminole Counties.
David Welch Real Estate Optimist, Orlando Real Estate, Any Home-Any Phone