We have discussed at times in the last few months the fact that asking prices for re-sale homes have been rising at the same rate as new contracts are falling. This now has home sellers adjusting prices down to meet the “comfortable purchase price” that buyers are willing to pay. In a sense, sellers are beginning to chase a falling market.
How far it will fall is hard to determine, and there are many factors that will effect where the “bottom” will be, but personally, I don’t see a massive disruption coming. This feels like an adjustment, not a bubble.
ARMLS released the numbers from October, as well as some expert opinion that I’d like to share with you.
First, the total sales in October on the surface look pretty good. However digging deeper, for those that are inclined to do so like “The Cromford Report’s” Michael Orr, an expert in Real Estate trends, you’ll see that they are actually a tad weaker than they should be.
He explains that the month October had 1 more working day in it in 2018 than in 2017. You may ask, “What difference does one day make?”. According to Mr. Orr, it makes about a 6% difference. In his opinion, October 2018 should have finished with up to 6% more closings due to the extra “Work day” available.
Mr. Orr Stated:
What stands out to me in Mr. Orr’s comment was the last sentence. This is the message that I have been sending for some time now to sellers, “Buyer enthusiasm is fading”. Due to this, “Price cuts are getting more common.”
With my most recent listing I discussed this current market adjustment with the seller, and we priced the home at the current market value based on real trends. 3 weeks later we have a full price offer (which is in line with the comps).
A listing on the same street, with the same floor plan was priced based on the upward swing of selling prices this year and reaching for about $13,000 to 15,000 more than the high comps. It was listed a week prior to ours, and is today still on the market.
The market is falling away from that seller, whereas my client saw the trend for what it was, and got his home sold.
Let’s look at List Pricing vs. Sales Price from October.
As you can see below, the “New List Price” averages went up yet again, but look at the line on the chart. It seems to be leveling off. This seems to be reality setting in and agents (hopefully) are done with the “Reach for the starts” pricing advise.
Compare the “New List Price” line to the “Sale Price” line and notice how the trend up for “New” is not followed by the actual “Sale” trend. Buyers are not chasing the pricing up, it’s that simple.
What is not clear is why they aren’t. It could be rising rates, it could be that the demographics of “Millennials” simply prefer to rent, it could be folks are satisfied with their current situation? Whatever the cause buyers are, to paraphrase Mr. Orr, simply less than enthusiastic right now.
Overall, this quiet trend is not concerning to me. Buyers are out shopping. Fewer of them, but they are there.
What does concern me, just a little bit right now, is a very slight uptick in distressed sales. Foreclosures are up ever so slightly. This is a number I am going to watch in the coming months.
Right now they are still very low, so it’s not an issue, but something to watch in nonetheless…if you like watching number in real estate like I do that is.
So, bottom line, here’s my advise:
Sellers. Make your home “The One”! Put in some work tp freshen your property. Paint, perhaps new fixtures, flooring, make it stand out and give the buyers a feeling of “Move in ready”. In most cases you will fetch a more desirable sales price that will earn your investment back, maybe even a bit more, and your home should sell quicker than most.
Buyers. I have said it all year…NOW IS THE TIME! Even as pricing adjusts down, any rise in interest rates will offset the price drops. Our parents and grandparents had rates of 9, 10, even 18%…5% doesn’t look so bad when you consider what it could be.
I have a great team of professional lenders on my team with programs to fit every buyer. If you’re not ready yet, they will help you set a plan to get there with free advice and guidance. Give me a call if you would like to chat with them.
If you are ready to buy, or sell, or know someone that is, I would be honored to earn the business. Give me a call, let’s get started today! (602) 818-6065 or Kevin@GiantAgent.com