Inventory levels stirred the most discussion in the shortened holiday week and a lot more answers than the original post was attempting to provide. And lets not forget Stuffing Omelettes, represented to be insanely good and now served on the Matrix Zeppelin:
In a stabilizing/stagnant market, you don’t want to flood the market with units, and so you may choose a specific unit type to offer and figure that the remainders will either be sold alongside them, or held back for rentals. Much of the pricing strategy depends on when the developer sees their first returns. With a 90% LTC, it may take until the penthouse floors are sold for the developer to actually see their ‘profit’…In general, you save the PH for last so that you can leverage the successful sell-out of the lower floors to command a high premium for the PH. If you’ve already made your returns, then you might be wiling to fire sale the remainders.
If the number of condo units being built is spiking up in recent years, leading to new condos being a larger percentage of overall housing stock, then even if the percentage of new condos being warehoused is a constant, wouldn’t those held-back inventory units be increasing as a percentage of overall units available? Meaning data is more skewed now than a few years ago?
I have a similar problem in Charleston. My inventory numbers on condo/townhomes are off because the marketing agents will not list all of the active condos when they are available. For example there is a 315 unit condo conversion and the realtor only has 5 units as active in the MLS right now. This really skews the inventory numbers in the market and it is impossilbe for me to track all these scenarios.
Clearly the tic upward in new developments under construction would skew the unreleased inventory numbers upward a little as well. Does it matter? Is it inventory if it isn’t built yet? When I sell in new construction it may take several months to a year to close the deal. It seems that the equally significant numbers are related to sales volume. The sold and closed deals from new developments today, reflect a significant delay in buyer activity from as much as a year ago. Likewise, I’ve a number of new development deals in contract for next year that represents buyer activity from the second half of 2006. It means that there is hidden buyer activity too. Since it’s ultimately a supply and demand question, to be relevant, doesn’t the inventory question need to be considered in relationship to absorption? How is it possible to really understand it at all with so much elasticity in the timing of that relationship? Suffice it to say Johnathan, that the post raised more questions for me than it answered; but I’d agree with you that, “…this technique has been done for as long as I can remember, inventory numbers should still show reliable trends. In other words, the count would be considered a constant in the equation.” At least I can take comfort in the fact that the inconsistencies are consistent.
Once a developer is in the black, whatever the mix, prices will climb – even if simply to tell customers to submit offers, that invariable tend to be high offers (or higher than the previous asking price) – you can achieve this in any market as long as your initial marketing mix creates a feeling of something being exclusive – once you have that and have sold a unit or two – even at low numbers – you simply make your money back on the remaining property.
I always get a chuckle when I see signs like that – or the ones that say “Make $3000/mo P/T – $8000/mo F/T”. You’d think if they were so successful, they could afford to have professionally-made signs. The best one, however, is the sign on the rolling junker that says “We buy houses”. Yeah, right… you can’t afford four tires that match, but you can buy a house for cash…
Speaking of stuffing. The next morning use the stuffing to make Stuffing Omelettes. It is insanely good.
We see signs, just like the one shown above, all over the Ocala area… and yes, we are also seeing the “We Buy Ugly Houses” ads as well. Just hold on to your britches, the next year should bring us more comedy in Real Estate!