While we are dismantling all previous assumptions, let’s throw out the one that says having six months’ worth of inventory is normal.
Why?
There is no more normal.
The market is much more efficient now.
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.
#Sales
Avg DOM
%LessThan10 DOM
SP:LP
Under $1,200,000
1,215
30
44%
98%
Over $1,200,000
664
56
26%
95%
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!
Mortgage rates were up to 4.80%, but have now dropped to 4.25% to 4.50% following the non-taper.
Downer Diana and one of these experts think lower rates will be short-lived, and the other thinks low rates are here to stay. Nobody ever mentions the real problem with the real estate market – finding a decent house to buy:
At the end of 2012, I guessed that NSDCC sales would go up 10%, and the average pricing would increase 6%, to around $400/sf. This year, sales between Jan 1 and September 10th are up 12%, year-over-year, and average pricing is also up 12% to $422/sf (though price velocity has been hot lately):
Results
2013 Sales
2013 Avg. $/sf
2013 Prediction
+10%
+6%
2013 Y-T-D Actual
+12%
+12%
Hang on to your hats for September pricing, which is currently at $497/sf!
Bruce Norris
“Bruce Norris, founder of The Norris Group, who early in the year predicted that price appreciation would be considerably more aggressive here — pegging price gains of 20 percent in the Inland area real estate market for 2013.”
Yesterday I spoke with a seller who was wondering whether to sell now, or wait until next spring to catch the more traditional selling season.
I suggested the following thoughts and strategy:
The velocity of rising prices should slow down, so let’s consider next year’s value to be at most +5% of what it is today, but if everything else is even, you might as well wait to sell.
Other potential sellers are thinking the same thing, which could crowd the field – which is a vote for selling now, when everyone else isn’t.
Mortgage rates should reflect the health of the economy, so we’ll call that even.
Certainty vs. uncertainty is a vote for selling today. Any economic surprise or natural disaster might make you regret not selling – especially if it was a local earthquake that prevented you from selling at any reasonable price.
Distressed sales have been a non-factor, though if when checking foreclosureradar.com you find multiple defaulters in your immediate vicinity, sell now instead of later in case lenders seize the moment.
If there are more than two high comps nearby to support your price, then you should sell now. You need recent solid sales to sell for top dollar.
If there are three or more active listing nearby, then wait ’til next year, and hope they hold out for top dollar. You don’t want to crowd the field.
If the move to the next home is flexible, then timing the sale of your existing home should really be determined by the recent sales activity nearby. In the tight-inventory era, we have seen how sales can dry up and leave the next seller gasping for evidence to support their optimistic price. It makes it harder to sell, and even tougher to get top dollar.
Older areas are prone to have lower-priced sales, so that should weigh in too – estate sales typically don’t care what time of year they sell, the heirs just want to get their hands on the money. If two or more of those hit the market, they could take a few percentage points out of your wallet next spring.
If you are in a great school district (CV), wait until next year. Buyers with kids don’t want to disrupt the on-going school year, especially if they are moving from a different district.
Consider all the factors, and do what is best for you – and get good help!
But in the post-frenzy era will those be enough to get buyers to pony up all the money for an old beater that is barely habitable on a smaller lot with no close beach access plus the old school site 100 yards away that has an uncertain future – then add a ‘Notice of Proposed Action’ on file, which probably means that the buyer will be expected to pay for his share of the new $5-million sewer line coming up the alley:
If this is the type of assistance you’d like to get from your realtor, I can help you too – let me know!
Doomers have claimed that since rates went up, investors are fleeing the market. Thankfully Alejandro of the latimes.comlooked into ita bit deeper to find that there are plenty of investors, but it’s finding the deals that is the challenge – an excerpt:
Now the foreclosed homes in those marketsare almost gone — yet investors have kept buying, competing with individual buyers in standard sales.
The number of so-called absentee buyers, usually cash investors, has dropped slightly in Southern California since hitting a record in January. But they still account for more than 1 in 4 home purchases in the region. And just 8% of those deals were on foreclosed homes in June, compared with 25% a year earlier and a peak of 55% in February 2009.
“Everybody and their dog is an investor,” said Dick Caley, a Long Beach real estate agent. “It has gotten to the point where I do not even return the call.”
As it turned out, housing investors needed neither the prodding of the Federal Reserve nor the bulk foreclosure sales from Fannie Mae, which never materialized beyond the pilot phase. The single-family rental industry now has several major players in multiple markets, with some recently created companies trading publicly.
The mix of investors and their strategies are shifting, with large financial firms starting to pull back and smaller players moving in, looking to buy, fix and flip homes for a quick profit. But rapid price increases are making it harder for people to afford a house and qualify for a home loan.
Hat tip to DJ3 and JP for sending in this article by Nick on the slowing market – an excerpt:
Buyers “want to lock something in before the rate gets away from them,” said Brett Dickinson, a real-estate agent with Sotheby’s International Realty in San Diego.
To be sure, there is often a slowdown in real-estate sales between the summer and fall, as school starts up and families look to stay put. And some real-estate agents welcome a slowdown because it eases their fears that prices were rising too fast.
“The market is having a bit of a hangover. We partied pretty hard, and you can’t go on partying like that all the time,” said Greg Markov, a real-estate agent with HomeSmart International in Phoenix.
Some agents say the biggest problem in the market is “seller greed”—that is, sellers pricing their homes too high, said Jim Klinge, a real-estate agent in Carlsbad, Calif. Faced with rising rates, buyers aren’t going for higher prices. “They don’t realize our 12- to 18-month full-tilt boogie is over,” he said.
While higher rates and prices are knocking marginal buyers out of the market, others, like Ghalib and Nancy Wahidi, will remain in the market but look for a less expensive house. The Wahidis’ original price range topped out at $1.2 million, but they reduced it after rates went up, said Dr. Wahidi, a 38-year-old physician. They are set to close this week on a four-bedroom $1.03 million home in Ladera Ranch, Calif., around 4% below its original list price.
Sarah Withers and her husband accelerated their decision to buy a home in August after rates increased. She said they are willing to pay $1,000 to get out of their apartment lease, which runs through next April. Last week, they signed a contract to buy a three-bedroom townhouse for $115,000. After the house sat on the market for a month, the sellers reduced the price, drawing four offers.
“We don’t believe that the recent increases in mortgage rate are going to in any way, shape or form snuff out the housing recovery,” said Timothy Sloan, chief financial officer at Wells Fargo & Co., at an investor conference last week. It wasn’t logical, he added, to expect double-digit price gains to last forever.
