Does Chicago Have a 'Low Inventory?' Here's What That Means

Does Chicago Have a 'Low Inventory?' Here's What That Means (Source: wikimedia.commons - used as royalty free image) 

In real estate, months' supply of inventory is measured by taking the ratio of houses for sale to houses sold in a given area in a month's time; gauging this allows us to determine how long inventory would last, given the current sales rate, if no additional houses were built or added to an area.

While these concepts may seem a bit esoteric or lofty at first blush, understanding what inventory means and how it works is vital to both homebuyers and sellers alike – particularly in a market like ours here in Chicago, where many analysts and consumers are quick to blame “low inventory” for a lot of their real estate woes.

But what exactly does it mean to have low inventory in a real estate market? And does Chicago really have a low inventory “problem?”

What It Does It Mean to Have Low Inventory?

One of the biggest reasons why it’s important to have a firm grasp on inventory is because, for those of us in real estate, understanding inventory is key to knowing whether you’re operating in a market that is more beneficial to buyers, or to sellers.  

Generally, a four-to-six month supply of properties indicates a market that is perfectly balanced in favor of buyers and sellers. More than six months, and we expect to see a “buyer’s market,” in which choice is plentiful and prices drop, in order to encourage competition. When month’s supply of inventory falls below four months, this makes for a seller’s market, which may result in higher sales prices and less interest from buyers.

What Does Inventory Look Like In Chicago?

First and foremost, it’s important to understand that Chicago is a city of neighborhoods, and each one operates a little differently. For a more granular look at housing market data, we encourage you to check out our neighborhood market stats roundups, many of which are available here.

For a broader perspective on the city and the surrounding area, let’s look to a few key resources. According to Crain’s Chicago Business, January of 2017 saw the lowest recorded number of homes in the market in 10 years, based on numbers provided by the Chicago Association of Realtors; this comes after a drop in total home sales in Chicago from 2015 to 2016, according to the Chicago Tribune.

And, as this infographic from Curbed Chicago illustrates, available inventory has been in decline in Illinois consistently since 2008, falling from more than 107,000 homes available in Dec. 2008 to fewer than 60,000 at the end of 2016.

But these stats beggar two questions to us: First, is this lack of inventory unique to Chicago? And second, is it really problem, per se, as some experts have indicated?

To the first point, it’s important to recognize that inventory is tight all across the country. According to the U.S. Census Bureau’s Monthly Supply of Houses in the United States, retrieved from FRED, the Federal Reserve Bank of St. Louis, months’ supply of inventory sat at 5.2 in March of 2017; according to the Remax National Housing Report, supply was at 3.6 months in February of this year, down from a supply of 4.0 months in February of 2016.

So, while many bemoan the state of the Chicago marketplace, it’s important to realize that it is hardly an outlier when it comes to having low inventory.

How Will Chicago’s Inventory Affect Buyers and Sellers?

And that brings us to the second point: While having a low inventory certainly has its disadvantages, it’s hardly all doom and gloom here in the Windy City.

For instance, home sales actually spiked in the city in January 2017, up 9.3 percent compared to the same month a year prior, according to Curbed Chicago. And, as the Tribune points out, the market is slow, but hardly unhealthy; median single family home and condo prices are up slightly, which is good news for sellers and may encourage more people to list their homes. After all, if a seller knows how to price their home correctly, demand is strong enough that the sales process may be both quick and lucrative.

Meanwhile, rising interest rates may actually convince plenty of fence-sitters that this spring is the time to buy, since it will almost certainly cost a lot more to wait until 2018 to buy.

Encouraged to start your home search again? That’s where we come in! Drop us a line with any questions or concerns about buying or selling in Chicagoland. Our knowledgeable team is here and ready to help set you on the right path!

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