The talking heads have considered six months’ worth of inventory to be ‘normal’.

This is the ‘new normal’.

To soften the seasonal impact, the “Months’ of Inventory” below was calculated by dividing the active listings by the 3-month average of the 4Q12 sales:

Thoughts:

1. The NSDCC 4Q number of sales were +38% higher than in 2011, even though the number of homes for sale were lower.  Have we become better at getting the price right?  Or has it been easier to bridge the gap between seller and buyers due to the lower rates helping to ease the pain?

2. Buyers made up most of the LP:SP gap.  The average cost-per-sf for NSDCC detached-homes in the fourth quarter of 2012 was +9% higher, year-over-year.

3. Those who aren’t selling must be 15% to 20% higher than comparable sales from a year ago if they can’t find a buyer, because those who were within 10% made a deal.

4. The minute that mortgage rates start rising, look for the Big Freeze-Up. Buyers feel like they have already given on price, they are getting squeezed by higher taxes/lower deductions, and other goods seem to cost more every day.  If/when the higher rates cause payments to go up, buyers will expect sellers to compensate with lower prices. But sellers will be very reluctant to admit that they blew another opportunity to get out.

5. Though the Grand-Canyon-like gap between LP and SP averages would be a quick excuse, it’s not always the solution. Look at Scripps Ranch, another tract neighborhood like CV where pricing is uniform, and easier to get right. Yet those not selling don’t look far off on price; they must be inferior in location and quality.

6. The average days-on-market for active listings in RSF is 177 days. The laws of supply and demand are rarely considered in the Ranch – list it, and they will come….some year.

7. The idea that six months of inventory is “normal” will probably be reconsidered, as will many of our assumptions about the real estate market, hopefully.