While we are dismantling all previous assumptions, let’s throw out the one that says having six months’ worth of inventory is normal.
Why?
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There is no more normal.
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The market is much more efficient now.
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It’s an errorneous signpost making people think that 6 months is the goal.
The internet has greatly increased market efficiency, creating instant exposure and urgency for new listings. Markets with more than six months’ worth of inventory are bloated with over-priced turkeys, where sales feel more like surrenders.
How efficient are today’s markets?
| NSDCC Sales Last 6mo. | ||||
| Under $1,200,000 | ||||
| Over $1,200,000 |
We have an efficient marketplace, but we lack tools to help interpret it better.
Let’s create new guideposts, based on how buyers think. They use the days-on-market metric as THE gauge for list-price accuracy, and think if your house doesn’t sell in the first week or two on the market – the price is wrong.
Sellers have choices – they can wait it out, hoping that the market comes to them, which has worked wonderfully the last 12-18 months.
But when the market flattens out, buyers want to see the price get lowered to compensate for stale-ness.
New Metric #1 – For Individual Properties
0-20 days on market – Hot property, sellers have max negotiating power.
21-45 days on market – Buyers get suspicious, want to pay under list.
45+ days on market – The gig is up, and buyers expect deep discounts.
New Metric #2 – For General Markets
0-30 Avg. DOM – Red hot market, buyers paying full retail, little resistance.
31-60 Avg. DOM – Buyers more demanding, and have more control.
60-90 Avg. DOM – Price reductions are working.
90+ Avg. DOM – Sellers are dug in, creating a major standoff.
Let’s use accurate rules-of-thumb that create better awareness for everyone. Most importantly, work with a realtor who knows how to interpret the market signals correctly, and advises you accordingly!
Inventory isn’t a function of efficiency, it’s a function of selection.
Efficiency is turnover, sales rate.
Inventory is simple, you go to grocery store, normally there’s a big area with whole chickens. You go in, you have your pick of 20 or 30 chickens. The store will sell about 5 a day.
The store runs a sale, you go in, there’s 5 chickens, they’ve all been bought, how do you feel trying to pick up a chicken? Is it what you wanted? The size or just close enough?
That’s our housing market, 5 chickens. Except they’re not on sale. The store is carry 5 chickens.
I want to ditch the use of inventory-size as a measuring stick, and rely on DOM as a better tool.
I didn’t separate the two that well.
Inventory level is a better measure of balance of power between buyers and sellers.
Think back to Ravi from a couple days ago. He saw 15 properties (or so it sounded), in a more balanced market, Ravi would have been able to see 45 properties and wouldn’t have had to compete against a half dozen offers on most of them.
If you look at DOM, you have half the story. The other half, we don’t have a metric for, it DTB days-to-buy. What is Ravi’s? 800+? It sounded like he’s been looking for two years. I know mine when I bought three years ago was easily 365+.
You can maybe create the stat, what’s your buy side pools DTB? Not just with you, but with whomever before you and you.
That’s not balanced when it takes buyers 330 days to find a place to buy and get a bid accepted and it takes sellers 30 days to sell. One side is desperate and frustrated and the other is borderline shocked at the speed it’s happening.
I appreciate your point.
The only thing that inventory level tells you is how many sellers are overpriced.
Look at the $1.2-million market, with 739 active listings. There were 108 that closed in the last 30 days.
But we have had 700+ higher-end listings for years, and there is no telling if any of the sellers need to sell bad enough that buyers should wait them out, or anything about the sales rate.
At least when you see that even on the higher-end that the average DOM is 56 days, you don’t get sucked into the myth that it just takes longer to sell higher-end properties. Yes, the DOM average is longer, but all that means is they are taking longer to get their price right.
One side is desperate and frustrated and the other is borderline shocked at the speed it’s happening.
I think the average DOM measures this better too, and it’s trend is the balance.
Zillow slides following new Citron Research report
In a report, modestly described as “the most comprehensive and thoughtful piece on Zillow ever published,” Citron Research declares the online/mobile real estate platform’s Q2 a “complete disaster,” argues its rapid top-line growth is only due to skyrocketing sales/marketing spend (now 70% of revenue), and declares Zillow lacks the operating leverage of a Google, Facebook, or LinkedIn.
Citron also notes Zillow only has an estimated 13.5% share of real estate site Web traffic (no site has a dominant share), highlights recent insider selling, and declares social media usage by realtors is “killing” the company (Premier Agent sub growth is nonetheless quite strong).
Citron first took aim at Zillow in Sep. ’12, when shares were trading at $44.41. They’re up 114% since then.
https://docs.google.com/viewer?url=http%3A%2F%2Fwww.citronresearch.com%2Fwp-content%2Fuploads%2F2013%2F09%2Fzillow-final.pdf
http://seekingalpha.com/currents/post/1291572?source=kizur
I agree about your chickens too – most coatsal areas are down to 1-2 chickens, with an occasional chick every month or two!
Yes, I understand where you’re coming from. I don’t have full MLS stats, so I’ll just use Redfin and DQnews for stand-ins.
Your metrics makes sense, but for a market that isn’t just red-hot, it’s white-hot.
If I look at DQnews, I see 3748 resales properties sold in August.
If I look at Redfin, I see 3620 properties for sale.
If I look at days on market, I see only 766 that are under 14 days and another 595 between 14 and 30 days. Let’s just assume half of those are under 20 days, which makes about 1064 properties under 20 days.
There’s 3748 buyers chomping at the bit. That’s nearly 4 buyers for every property. That’s like Wii lines at Christmas a few years back.
How do these DOMs change when the for sale / buyer ratio goes to 1? How’s pricing go when the ratio goes to 1?
Is the house right priced today? Yes, because they’re four buyers and those four buyers have been seeing each other the last three houses.
It seems strange to lump all the price ranges together the same way it’s been done in the past when we know the mix has changed.
If there are the same number of buyers hanging around, I think most are hoping the others drop out soon.
Last September there were 2,971 sales in SD County, and 1,305 of those between Sept. 1-15.
This year we had 1,169 between Sept 1-15, though there could be some late-reporters. Was it white-hot last year, or can buyers hope that it might be slowing down?
But the numbers are still too big to help with specific decisions – it is case by case.
I went to a new listing today that was open for the first time, and there must have been 30-40 people there in the first hour.
Another thought on Ravi and others who have been looking but haven’t bought.
They aren’t shut out.
He has made offers, but wasn’t desperate enough to pay what it took to buy it. He can afford to pay more, so he must be somewhat comfortable with waiting for something better, otherwise he would have stepped up by now.
There were 37,279 homes sold last year, and 27,813 YTD this year, or 65,092 sales in San Diego County since 1/1/12. There were plenty of opportunities.
The Days-to-Buy metric is the Picky Meter. Buyers have a choice – they can be less picky, but most don’t NEED a house like they need air to breathe.
The elective buyers get blown out by the desperate/inexperienced buyers.
“The Days-to-Buy metric is the Picky Meter. Buyers have a choice – they can be less picky, but most don’t NEED a house like they need air to breathe.”
Many sellers don’t need to sell either. So the current market is mostly determined by sellers who need to sell and buyers who need to buy. The others buyers and sellers are simply hoping to get lucky or waiting for better opportunities. When prices drop picky sellers lose and when prices rise picky buyers lose.
Wouldn’t the magnitude of price changes simply by THE metric to use for the health of a market? If prices are rising or falling dramatically, then the current market cannot be balanced. If prices are steady, then the market is balanced.
Perhaps we could measure the number of OPT’s on the market and compare that to the number of MHB’s?
MHB : “Magic House Buyer”
Magic House : A spectacular property and deal that is invisible to all other buyers.
I think the MHB cross-breeds with the buyers who always believe that because they bought it, it’s a deal.