As those of you who have been following my blog know, one of the main statistical areas I have been tracking is the ratio between Active (for sale) and Closed (sold) properties on the MLS. I look at the whole MLS and also target Tempe as a sample of a local market.

At the end of March I noticed that many offers on properties below $150k were going very quickly and these properties frequently had multiple offers. Concerned by this trend I decided to check the MLS and noticed that the inventory was down to 50,200 active listings, 200 away from the 50,000 threshold. The market was last below 50,000 back in January of 2007. One day later it had dropped below 50,000.

I began monitoring the numbers on a daily basis and found the inventory dropping by hundreds each day. My last check, prior to writing this blog was Wednesday, April 8, the total for active listings was 47,394 in the morning and 47,267 by the evening. A 6% drop in less then 10 days.

Going a bit deeper we see that there are 12,341 pending listings (under contract) which means the total sold for the past 30 days (7,554) could jump substantially in the next month.

The significance of this number is the ratio between Active and Solds, which gives us the absorption rate: the time it would take at the current rate of sale for the inventory to be completely sold. For the past few days that rate has hovered between 6.5 and 6.2 months. That is down from 12 months in October 2008 and 18 months in April 2008. A very significant drop.

What is more significant is the 6 months inventory is the turning point between a buyer’s market (above 6 months) and a seller’s market (below 6 months).

The main factor driving these numbers is the anecdotal evidence: that bank properties are starting to be bought up, that there are frequently multiple offers and that investors are buying bank properties in blocks of 25 or 50 units.

Many buyers have been sitting on the fence in the belief that prices will drop further. As soon as they figure out that the prices are not dropping any more, they will start buying aggressively. The calm will be over and the storm will begin.

By the time these buyers catch on, prices will already be rising and they will either be paying more or will no longer find quality products at the prices they wish to pay…

Thus the calm before the storm.