Hello everyone and welcome to another episode of Selling Greenville your favorite real estate podcast here in Greenville South Carolina I'm your host as always Stan McCune Realtor right here in Greenville and you can find all of my contact information in the show notes if you need to reach out to me for any of your local real estate needs and just a reminder as always if you like this content then like it online hit the little like button on YouTube please make sure that you subscribe that you don't miss future episodes and if you can leave a rating or a review I would greatly appreciate that as well it only takes 1 second by the way to hit the like button if you're on YouTube so I'd appreciate if you could do that don't get a ton of likes it's not because people don't like the content I have people texting and calling me every week telling me they like it they just don't take 1 second to like it on YouTube so I'd appreciate if you could do that alright we need to talk about because we have talked a good bit about kind of where the direction of the market is whether it's a buyer's market whether it's a seller's market where prices are going we talked about how in the data for the month of July we saw prices come down we don't yet have the data for the month of August at least not the monthly indicators that the Realtor association produces but I do get a little bit of a sneak peek at it and I think that we are going to see more of the same in terms of in terms of downward price pressure and you know at some point that becomes a trend and you know right now we're experiencing you know weird a lot of weird things going on we've already talked about that I'm not gonna get into all of that again with the broader economy with inflation with mortgage rates being where they are just and it's an election year there's just a lot of odd things just kind of in the hopper right now and these things do if affect the real estate market but the question is are these temporary or are these permanent or maybe permanent is not the right not the right word are these little flash in the pan kind of situations where maybe there's a few months where prices come down and then it kind of normalizes again or are we in for a longer stretch whereby we're going to see downward pressure on prices that's what you know a lot of people have been predicting for a while I've called them doomers but we're starting to reach a point where maybe we do need to consider what are what is the scenario whereby the doomers are correct whereby we're actually seeing prices come down like they do in a recession and that's what I want to discuss today and I specifically want to discuss this from the standpoint of months supply of inventory I'm gonna share with you guys if you're watching on YouTube you're gonna get to see exactly what I am looking at here I'm looking at the Infosparks software that the Greater Cleveland Association of Realtors provides for us and I'm specifically looking at months supply of inventory for all construction types okay now here's why I'm looking at month supply of inventory this really is the main metric that we look at to determine the direction of the market right it tells us where the market is right now it tells us where the market is moving cause month supply is both a metric it is a metric that combines both supply and demand okay if you just want to look at the supply side of things then what you look at is just total inventory if you look at total inventory you will find that total inventory and I've talked about this before total inventory is at the highest level that's been in 15 years but that's not factoring in that's supply side only that's not factoring in demand you look at demand by looking at the absorption rate and then what they do is they combine those two up together to come up with months supply of inventory which tells you okay if no more homes were listed at ever again in Greenville how many months would it take at the current absorption rate for all homes to sell and here's where we're at right now at least with the data that Info Sparks has info Sparks sometimes produces the data quicker than the monthly indicators we get from the Realtor Association but it's currently saying we are at 4.3 month supply of inventory for the month of August alright as I'm recording this on Labor Day we only have August up through August data 4.3 month supply of inventory now what you will hear people say is that six months of inventory is what we would consider to be a balanced market neither a buyer's market nor a seller's market for quite some time I've been telling you guys that I think if we hit 4.5 months of inventory that that is the tipping point that is the point at which I think it would shift from kind of a seller's ish market to a neutral market I think you know the difference between 4.3 and 4.5 is negligible and so I think we're pretty much already there and so I think that basically the higher we get basically the more we're gonna say okay this is for sure entering into buyer market territory but that's not what I'm trying to get through here I want to try to understand how this month's supply of inventory affects pricing affects how much real estate costs in the Greenville area alright so I've got this data it goes back all the way back through 2009 now the highest we have going back all the way back to April of 2011 the highest month supply of inventory that we have on record was that month and it was 13.6 months supply of inventory that's wild that's a that's hard to believe right that's like oh gosh that's greater than three times the amount of must supply of inventory that we currently have that's wild right that that was a very that was an ice cold market I feel bad for the Realtors that had to work through that that those were tough times then it came down from there that was the high point it came down rather steeply and then you know kind of started to go back up again in 2014 and then started to come back down into the levels that we saw pre covid and then of course covid inventory was insane we went all the way down to one month supply of inventory which is which was unbelievably unhealthy on the other end of the spectrum before we started the current incline up to where we are right now let's look at the sales price data we don't so we have the month supply data going back to 2009 we have the sales price data going back to 2008 and here's what that data tells us that data tells us that basically home prices went down pretty pretty steadily through 2,011 then they kind of rebounded a little bit back to not back to pre recession levels but they rebounded back to basically beginning of recession levels and then kind of we really don't see much true appreciation until 2,014 into 2,015 that's when we really start to see actual appreciation in the real estate market so from 2 thousand eight through 2,014 there was basically no appreciation in real estate once we get to end of 2,014 into 2,015 that's when we start to see the appreciation that Greenville then continue to see until you know Covid happened and then we have you know all the covid craziness and then the past few years it's been pretty pretty flat we have still seen appreciation until fairly recently at least when we're looking at this data which is not 1 to 1 appreciation but it's the best metric that we have to assess that and so that's basically what we've seen so what I'm curious about here is where is the tipping point so here's what we see right we saw from a right around that 2014 2015 period of time was when the market started to started to see what was for quite some time basically until a pandemic happened normal appreciation what happened right around that time right around that time period we saw months supply go from 7 down to about 5 okay and then once it goes below five that which is that's when we get into 2015 and to 2016 that's when we start to see things actually change in terms of sales price appreciate appreciation sales price growth so very interesting we see around 5 months of inventory is when you know and that was a pretty rapid fall right from seven months down to five months that told us that things were things were changing in the market and here's a very important detail with all of this okay this is a little bit of more of a nerdy episode so I'm gonna try to not just say all this data in a way that causes you to check out I understand it's nerdy and it it's not the best to listen to it's better to watch but that was a rapid decline from seven months to five months that happened from June 2014 was at 7 and then you know we're at 5.1 months of supply of inventory by February 2015 so in half a year a little more than half a year it dropped two months so there was momentum there were tailwinds in the market causing that to happen and basically bringing there was a lot more demand that came into the market very very quickly and then that's when we started to see prices do their thing and that's when we finally got out of the mess of you know the Great Recession the global financial crisis that's when we finally saw real estate prices do what they hadn't done for so many years before that we started to see actual appreciation okay that happened right around that period of time when it went to five months of inventory now here we are sitting at 4.3 months supply of inventory it feels very much like a neutral market tilting towards buyers right now what my theory is right now is that if we reverse the trend that happened back in 2015 2016 and saw 5 months supply of inventory in in this market it would be very very clearly a buyer's market and we would start to see prices do what they did between 2008 and 2,013 14 basically either not go up or start to come down a little bit that's how close we are we're very close we are you know just not even a full month supply of inventory away from seeing something like that happening for some reason all of a sudden I can hear an echo and in my headset and I don't know why I'm hoping that that's not reflected on the audio for you guys but regardless I will continue on here 4.3 months supply of inventory how hard would it be for us to get to five months of inventory the last time we were at that level of inventory was 2015 we haven't been in fact 4.3 month supply of inventory is the highest that we have been at since 2016 so we are the market right now if it you know for those that have been in real estate I've been in real estate since 2016 it really does feel very much like 2016 2016 you know buyers had a lot of leverage it wasn't exactly a buyer's market but they had a lot of leverage they were able to get closing costs paid they were able to get buyer agent commissions paid they were able to get repairs done they were able to get concessions they were able to get a lot of things sellers are still able to move their homes and sellers were still seeing a you know a level of appreciation which we just talked about right nothing super dramatic there was a little bit of catch up that had to happen but it was a market that saw both appreciation but also buyers having negotiating ability that is kind of where we're at right now but remember you have to account for headwinds and tailwinds OK and that market had had tailwinds for sellers really and from the standpoint of more demand there were tailwinds for the demand right now there's headwinds for demand there's all of these different factors slowing demand down causing demand the causing the prospect excuse me I don't know what happened there but causing the prospect for future demand to not be as great and so all of that to say when the market went from back in 2014 2015 from 7 months supply of inventory to 5 months supply of inventory even though that is a snapshot of what's happening right when you look at a month you're looking at a snapshot the market the those tailwinds I reference were already baked in there so the market that appreciation was already starting to happen was already starting to get into the pipeline at that point and so that's why we see you start to see this little bump up in 2014 you know even before it hit that 5 months supply of inventory because that is that demand was entering in and the months supply eventually that that number is lagging a little bit and so that's where we find ourselves now right we find ourselves right now we're at 4.3 but that number you need to think about that as a lagging number and don't get too caught up in well I always hear the rule of thumb is 6 months of inventory is a neutral market first off that doesn't apply anymore and here's why because construction inventory is comparable to in in terms of months supply is comparable to existing home sales but here's the important thing and we've talked about this before is the sales price for new construction is substantially lower than the sales price for previously owned home currently previously owned or existing home sales for the month of August and this data was 327,500 whereas new construction was 309,000 that's doing a 20 thousand dollar difference with existing home sales being more expensive that doesn't compare to the market that we're talking about the market from 2008 all the way until 2021 new construction was always more expensive than existing home sales and so this is something this is a big driver of what is going on here is that new construction is bringing that downward pressure in a way on prices in a way that it never has and that is why when I'm looking at 4.3 months supply of inventory I'm seeing that we're a lot closer to a buyer's market to even a depreciating market than what most people would think with that number most people would think that's a healthy number that number is very very close to us seeing sales price appreciation and again here's where I think we are we're basically at that level where I'm expecting to see it if this number doesn't go down if we continue to see this number going up we're gonna be in a depreciating market very soon and you guys know I am not a doomer okay I have I have made fun of doomers quite a bit and here's what I will say about the doomers they really want a 2,008 style recession and we're not going to see that at least not with the current dynamics but could we see a an a scenario where real estate in Greenville starts to where prices start to go down yeah particularly if new construction keeps doing what new construction is doing which is now you know basically it's come down from its high point of 3:34 and change in November 2022 and is now down to 309,000 if we saw new construction like really start to get down into the like around 300 or below that would completely alter everything and so I'm going to be tracking obviously that very closely because again so much of the headwinds right now against the against the market are complete are related to what's happening in new construction and so just like as I said just like we saw prices start to shift once we went up you know down to five months supply of inventory in 2015 so if we got to five months supply of inventory in 2026 or 2027 I think by that point we would have already had start started to see a depreciating market we would already be in a depreciating market by that point that's my prediction that's what I believe based on all of this data and so that's something to keep in mind when people ask me well what what's next year gonna be like I've had some people that are looking to sell and they're like well should we sell this year or next year man that's a hard question to answer right because you know we're now in the post Labor Day market just typically when it starts to get slower to sell and in some cases it might be better to wait until the spring if you have that kind of flexibility but what if we're in a full blown real estate recession in in spring of next year what if that happens what if you know this month supply of inventory does get around 5 and now we're in a situation where it's like ah you know what okay yeah sorry I'm really bothered by I hear so much of an echo in my in my headset I was like is my is my microphone here even working it is working let me turn it off and on real quick OK yeah I still hear it hopefully you guys can't hear it but I'm what I'm saying is we will know very very quickly where this market is going and like I said I think we're about to see I'll just go ahead and give you guys a sneak a sneak peek here the sales price for the month of August in this data was down one and a half % year over year and July was also down year over year as well and so we're about to find ourselves so let's see here July was 3:31 Last year July of this year was 3:30 so not much of a difference but August down one and a half percent that's a little bit more substantial and so we'll need to track this is this gonna become a trend if this does become a trend it's going to be tied in some way to this month's supply number because there's gonna be something in the demand that's causing these prices to go down here's the other possibility that I'll leave you guys with is that we might be entering a time where seasonality and maybe we're already here where seasonality is more extreme than what it has been in the past and here's what I mean by that Greenville is a very very seasonal market okay we have the beginning of the year starts slow January very slow takes people a while to get out of their holiday slumber February we start to see the market pick up by March we are in the full blown hottest part of the season okay a lot of people don't realize that it happens that early but it does happen that early once we get to Memorial Day we see a little slowdown the peak season has already come and gone by Memorial Day okay now that doesn't mean that it's not still a hot time right the that I'm not saying that the entire peak season I'm saying the peak of the peak season is over by Memorial Day that's basically February to may once we get to June July still very hot but not quite as hot okay July tends to slow down a bit because of people going on vacation all of that July 4th all of that August little bit of a bounce back sometimes but then Labor Day comes we see a substantial slowdown after Labor Day then sometimes a little bump in October November comes big slowdown in November big slowdown when it comes to Thanksgiving and then when we get to December like it really really in a lot of ways grinds to a halt once we get to Christmas New Year's all of that and then we start it all over again in January what we have experienced the past few years is the extremeness of the slowdown starting in July has been much more extreme than in the past I'm gonna actually stop sharing my screen here so I'm just talking to you guys the slowdown post July 4th has been much more extreme the past couple of years than what it was traditionally and then the post Labor Day slowdown last year was very extreme okay that might happen again this year I'm not sure of course today is Labor Day as I'm recording this so the jury's still out we'll have to see but what we could see is that basically that peak spring and summer season is when we see prices go up and when we see month supply go down and all of that and then maybe there is just a a very big extreme when you get to the fall and winter time where it where we could be in a scenario almost where we have a seller's market for half the year and a buyer's market for half the year I'm not predicting that I'm just saying that is in the realm of outcomes and that's not something that since I've been in real estate that we've had and I'm not exactly sure what's causing that to be completely honest I'm just telling you that that's what it was last year somewhat the year before and it's looking like it might be like that this year as well but all in all I think what you guys need to know is that we're very close to seeing the market enter a period of sales price decline at the very least sales prices are not going to go up at a very fast clip we've talked a good bit in in prior episodes about why that's happening this episode I wanted to focus on how we can identify what direction the market is going in the months supply of inventory being as it approaches 5 that is really the benchmark in in the Greenville market I'm not speaking for any other markets but in the Greenville Spartanburg Anderson Lawrence you know a Coney all of that market that is what you can expect and that's what we'll be tracking for the remainder of this year and into next year so thank you guys so much for watching and for listening I appreciate all the support for the show I'd appreciate if you could support it by liking subscribing reviewing rating all of those good things and as well if you need a realtor in this area please reach out to me my contact information is in the show notes thank you guys once again we'll talk to you guys next time!