Fewer Homes For Sale In Chicago Does Not Mean Tight Supply

It turns out that it could simultaneously be true that Chicago has fewer homes for sale this year while having a greater supply of homes for sale and understandably the media is very confused by this. First, it is unquestionable that the inventory of homes for sale is dramatically down over last year – about 30% lower depending upon how you measure it.  But inventory does not equal supply. Production + inventory equals supply and in the case of homes production equals new listings. And new listing activity has actually been up over last year.
According to statistics from the Chicago Association of Realtors single family home listings were up 6% over last year while condo listings were up 24%. My own analysis for August shows that total listings were up 11.5%. But the reason this isn’t increasing inventory is that listing market times are down dramatically in the last year so that shortly after a home hits the market it’s gone.
Of course, one could question whether or not the increase in new listings was sufficient to offset the decline in inventory. But this is where the discussion gets a bit more complicated. It’s not just the total number of homes that matter but the quality of homes and the price of those homes. If total supply was down but the quality of that supply was actually up (better pricing and better condition) then has supply really gone down? A lot of the homes previously on the market may have been seen as undesirable.
At the end of the day supply always equals demand and that equals transactions. And the fact of the matter is that this year demand and the associated transaction volume has gone up dramatically – anywhere from 16 – 36% depending upon the month. So it’s not at all clear that supply is down as often stated in the media and it could actually be up.
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