When comparing active listings to pendings, we have called a 2:1 ratio ‘normal’. It goes the same for total listings-to-solds; only half the listings sell in a normal market (which can be an abrupt lesson for sellers to realize that there’s a 50% chance of failure).
This isn’t a perfect measure below because it’s comparing the total listings taken in the same period as the sales closed (between Jan. 1 and July 31) but the sales include some listings from the previous period. But to be able to gauge this year’s performance, it’s close enough – we’re comparing the ratios.
When the percentage gets around 60%, it’s frenzy time.
NSDCC Detached-homes Sold between January 1st and July 31st, and the Total Listings taken between January 1st and July 31st:
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| 2014 |
We’ve had 14% fewer sales YoY, offset somewhat by 3% fewer listings.
For now, the market appears to be in good health – though our 53% is the same as it was in 2005. Note how the number of total listings tightened in 2003-2005, then popped loose in 2006 – will that happen next year?
Jumbo mortgage rates are in record territory, which should help keep the market alive the rest of the year:
My 4.625% rate seems like a rip off compared to 3.95% but it is still dirt cheap relative to historical rates.
If only half of the properties listed are eventually sold, does this mean that roughly half of the people who list their house are only testing the waters to see if they can get an above-market price?
If someone really wanted to sell their home, how could they fail to do it? Wouldn’t they just keep dropping the price until someone finally buys it?
Here at the blog we talk about how there is nothing price can’t fix, but it is a foreign concept among many agents.
They put a price on their listing and think it is their job to defend its honor. If no buyer comes along, then something’s wrong with the market.
The best thing that Zillow can do for real estate is to sell my t-shirts!
Hi Jim, your blog is excellent and your insights are sharp. I think your analysis is wrong on this one, though. Just because there are more people in line at Disneyland than on the ride itself doesn’t mean all those people go home without a ride; they just have to wait longer to ride. Likewise, the 2:1 ratio doesn’t tell you that half of homes fail to sell, it just tells you that homes take on average 60 days to sell.
To see why, notice that the inventory to sold ratio is just a modification of the familiar “inventory turns” ratio in business (cost of goods sold/inventory); you’ve essentially inverted the ratio and multiplied the numerator and denominator by the average selling price. To get days it takes to sell a house, divide 30 days by the inventory turns ratio (.5) and you can calculate it takes 60 days to sell a house.
http://en.m.wikipedia.org/wiki/Inventory_turnover
Whatever.
If you put your home on the market and the listing expires, you failed to sell your home. I’d call that a failure.
Some try again and again, and we can note how stark the inventory really is when the 3,200 listings is really only about 2,000 to 2,500 homes trying to sell, due to many having to re-list.
As an industry we need to abandon our shallow view of the days on market statistic. I regularly hear agents make statements like, “Well you know, the average house in RSF takes 120 days to sell”, as if they just expect to wake up on Day 120 and find an offer on their thermal fax machine.
The average days-on-market is the average number of days it takes for sellers to get their price right. You and I know that listings get stale after a couple of weeks, and buyers expect to pay less and less as time goes on. We got spoiled during the frenzy when the market caught up fast, and made some OPTs look smart, but in reality they sold in spite of themselves.
In areas like RSF, you can double the number (at least) to account for all the relists. Though it is against the MLS rules to cancel a listing and relist it within 30 days, agents do it incessantly and there is no enforcement. The new MLS system removed the ability for agents to complain about violators too, so the deceit runs unabated.
Why does it matter? Because the status quo is full of deceit, and it’s all in the favor of the sellers. Listing agents are here to boonswaggle buyers, and the MLS, NAR, CAR etc. allow it. If buyers don’t get good help they can be taken advantage of quite easily.
Agents don’t study the market like we do, and understand how it works. Want proof? How many realtor blogs do you see where the agents can articulate in detail the seller and buyer positions? Just like with Zillow, there are outsiders who understand our business better than we do, and are better at articulating it. But it’s only because agents refuse to keep up.
“But it’s only because agents refuse to keep up.”
“You can’t make a man understand something if his salary depends on him not understanding it.”
For the agents who might be reading, start your blog and be amazed at how much better you are as a realtor.
Because of this blog and my desire to bring the truth to the consumer, I’m so much more aware of market conditions and changes. I see how transparency is good for all involved, I encourage it, instead of resisting like many.