A modern fable about (real estate) supply & demand
Once upon a time, in a modest little city, there lived a shopkeeper who owned a modestly successful shoe shop. As one might expect, the meticulous shopkeeper took great care every week to keep record of the available shoes for sale. Furthermore, once a week a truck arrived with a shipment of new shoes for the store to sell. All of this was accounted for in the shopkeeper’s dusty old accounting book.
Having owned a shoe shop for many, many years, the shopkeeper was accustomed to both good times and bad. When the people of his city had available income, they often came to him to replace their shoes well before they were nearly worn out. And when times were hard and jobs were less secure, they often made due with what they had. They waited longer to visit his shop.
One Monday morning, as the shopkeeper was preparing to open his store, he was counting the pairs of shoes on his shelves. He noticed where he normally had 100 pairs of shoes, on this particular day, he had 90. He thought to himself, “Well! Last week was a busy week indeed! When the truck arrives today, I hope it will have more than enough shoes to fill my shelves…”
And later that day, the truck did indeed arrive. Only this time, whereas the truck would normally have had 50 pairs of shoes, on this day it only had 40.
The shopkeeper thought to himself, “Hmmm. Last week I sold more pairs of shoes than I expected to sell. And now my supplier has sent me fewer pairs of shoes than normal!” And he noted all this in his dusty old accounting book.
Several more weeks passed, and every Monday the shopkeeper noticed more empty spaces on his shelves. At first it was the smaller-sized pairs of shoes.
It wasn’t long before he noticed he was missing more of the larger sizes too.
And he soon realized another important detail—his customers had noticed too.
Then one Monday as the truck with the shipment of new shoes arrived, the shopkeeper looked out his front window and saw there were three customers lined up waiting for him to open. There had not been customers waiting in line for him to open the store in many, many years. Yet here they were, waiting for him to unload the truck and open the store. They wanted to be first to see the new shoes he had.
As the weeks passed, every Monday the truck brought a few less pairs of shoes than the week before. Meanwhile, the line outside the door every Monday grew a little longer and a little longer. Pretty soon, not only was the shopkeeper selling more shoes than he could keep in stock, sometimes more than one customer would want to buy the same pair of shoes! Often the customer who wanted them the most would offer to pay cash. And some would even slip him a few extra dollars!
One Sunday afternoon, as the shopkeeper was noting the week’s sales in his dusty old accounting book, he began to flip back through its worn out pages. And there he saw, in the records he had kept so diligently, that many years ago a similar thing had occurred. The number of shoes he sold went up and up. And the number of shoes the truck delivered went down and down. He remembered the lines outside the door, and the customers wrangling to buy the shoes that were in high demand. He even remembered some folks offering him a few extra dollars for the shoes they wanted the most.
That was a long time ago.
The shopkeeper closed the book, returned it to its shelf, and went in to bed. He needed his sleep.
The next day was sure to be a busy one. It would be Monday, and new shoes would be arriving on the truck. And he felt pretty sure there would be more and more customers lining up to buy them.
I believe there’s a need in every business for sound statistical analysis.
We need numerical data to understand the past and forecast the future.
But we are also human, and behind every statistic is a story. Or more accurately a collection of stories. I often find a stat and a story go well together. One without the other seems… lacking in some way. The fable I’ve drawn out here is one I use frequently with clients—albeit in an abbreviated form.
I think it’s helpful to think of housing inventory in a visual way—such as a store full of shelves. When there are just a few homes to choose from, it’s like you’re looking for something on an empty shelf. When a hot product comes out and folks wait in line to buy it, it’s just like when a new home comes on the market and buyers rush to see it first. And just like retail is cyclical, so is real estate—supply & demand will always ebb and flow.
So couple that with the fact that I’m a dad to 4- and 7-year-old girls—the age in which fables abound—and I suppose I’m just in story mode these days.
But hey… whether you’re reading Goodnight Moon for the 75th time, or helping buyers and sellers understand the shifting real estate market, you’re never too old to enjoy a good story…
By Dan Vollmer