How much inventory is too much?
We’ve had 12% more NSDCC listings this year than in the first nine months of 2012, and stoked by ultra-low rates, the extra inventory helped build sales momentum. Comparing the nine-month totals, sales increased 10% this year, and average pricing is up 15%.
If there is an increase in inventory next year, will it help, or hurt? Depends on price – will sellers put a reasonable price on them?
What do buyers consider to be ‘reasonable’?
Lately, buyers want to pay about what the last guy paid:
|31-60 Days Ago|
|0-30 Days Ago|
This sentiment should continue, because buyers don’t mind paying what the last guy paid. Any 2014 seller who is willing to take what the last guy got, should have no trouble selling – and we should see brisk activity on those.
The sellers who don’t ‘need’ to move and have been waiting to get max money won’t be able to resist tacking on that extra 10%. But today’s buyers are staying in line with recent sales, and if that commitment continues, it could lead to a standoff and possibly a glut of unsold homes.
What could cause buyers to ignore the comps next year?
If mortgage rates slip back into the 3%s, the frenzy might pick up again. Today you can get a conforming loan at 4% with one point – so we are close.
I have vastly under-estimated how much buyers are willing to pay this year, and the disconnect from the comps. Sellers have benefitted this year, because buyers are just paying whatever it takes to get a house.
Will it continue? It could, so take my zero-appreciation talk with a grain of salt.
Last October we weren’t even sniffing $400/sf yet, and now look where we are. Could we just be passing through $475/sf too? Maybe, and adding one percent per month is still 12% per year!
We could be experiencing an off-season breather, and appreciation could take off again next year. Sellers will be forcing the issue, can buyers restrain themselves? If rates are in the 3s, it will be easier for buyers to justify paying more.