Actives to Pendings, and what they tell us. . .

It seems to be almost a knee-jerk reaction when I see friends & acquaintances- the second or third thing out of their mouths is: “so, how’s the market?” I’m pretty sure I get a perplexed and slightly pained look on my face. In over seven years, I really haven’t figured out how to answer that question, because I’m trying to process all the following thoughts at the same time:

“Which market exactly do you mean?”  The residential market under 400K is very busy but the 750K+ market is struggling. The condo market is currently faring worse than the residential market, the market in Seaview seems to be really hot, but homes seem to be sitting over in Delridge, homes with ocean views are selling well because people who couldn’t afford them 5 years ago can now,”  and so on and so forth.

“How is the market for whom?”  If you’re a seller of a 1.2M dollar home you’re probably thinking the market is beating you up a bit. If you’re a first time buyer who just closed a great deal on a HUD home, put 3.5% down and got all your closing costs covered you probably think the market is beyond Awesome. If you just got edged out of a multiple offer situation on a new listing, you’re probably saying “what the heck is going on here I thought it was a buyer's market!” and so on, and so forth.

I imagine I must look pretty constipated with all that happening in my little brain simultaneously. So friends. . . today I’m going to offer up a little Real Estate 101: Actives to Pendings, and whether they tell the story of a buyer’s, seller’s, or “balanced” market.

It follows simple laws of supply and demand: think of an Active listing as a product sitting on a shelf in a store. Better yet, in light of last year’s holiday season, a pair of Air Jordans.  If the store has an ample supply of AJ’s, anybody can walk by, grab the pair they want, and put them in their shopping cart. Now, think of a Pending listing as a pair of AJ’s that somebody has already put in their shopping cart, and is waiting in line to check out. If so many people are putting AJ’s in their cart that the clerks can’t re-stock the shelves fast enough, or worse yet, the store runs OUT of AJ’s, people might start approaching the people who have them in their carts, and offering them money (or attempt to wrestle them away, as we saw). Some folks will buy AJ’s at the store only to turn around and re-sell them on eBay at a handsome profit. Did you see the videos of people sprinting through the doors of shopping malls across America to get the AJ’s? That was an Air Jordan Bubble. Did you see the re-sells on eBay? That was an Air Jordan Flip.

But I digress (only slightly). By keeping an eye on the ratio of Active (for sale) listings to Pending (sold but not closed) listings, you can get a handle on “How’s the market?” Let’s say in a given week in a given area, there are 33 Active listings, and 27 Pending listings. That’s a sales ratio of 82%, indicating a strong seller’s market. In another area of town, let’s say there are 45 Actives and 21 Pendings in a given week: that’s a 47% sales ratio, indicating a “balanced” market, not particularly favorable to buyers or sellers. Lastly, if there are 50 Actives but only 3 Pendings in a given week, only 6% of listings went under contract, which means it’s a strong buyer’s market.  And don’t forget: Markets change daily, markets change by price range, markets change by house style, and markets change by area.

How’s the market in West Seattle? Here’s a chart of Actives to Pendings for the last 4 weeks. Given that the average sale price for a sold home in WS for the last 6 months is $344,842, and the average market time is 62 days, the numbers sure look like a seller’s market to me, at least in this price range. Whether that’s “good” or “bad” really depends on whose Air Jordans you’re wearing now, doesn’t it?