Q: Denise, I have been watching your weekly Denise Live and your Market Survival Guides. I want to take some of your ideas and put together a report for my past clients. But I noticed that when you talk about inventory, you indicate that to measure demand, we should look at homes under contract (pendings) and not solds. Why?
A: What a great question! Solds represents properties that were spoken for anywhere from yesterday to several months ago. To understand how many buyers are in the market at any given point in time, it is critical to look at new pendings as those are the buyers who are actively in the market and have raised their hands, indicating their intent was to buy most recently.
Let’s look at an example. Let’s say there are apples in a store and on average, historically, one apple was purchased per day. If there are ten apples at the store, then one apple consumed per day doesn’t put a strain on the supply of apples. But what happens if all of a sudden a lot of people come in and want apples? In fact, if there are nine people who buy an apple, only one apple is left. If another nine people come in the next day demanding apples as well as the day after that, should the produce manager base his or her apple order off what had historically been a low demand of apples at one per day or should the manager base the order off the current demand?
This is why looking at new pendings is so important when evaluating supply and demand and price.