Yesterday reader DaCounseler asked about value-range pricing, and how it shows up on the statistics.
Using two list prices to create a ‘price range’ was added as an option about ten years ago as an alternative to “get the conversation started”.
It does provide one benefit on the MLS. Agents looking for properties up to $800,000 would see a listing priced on the range $799,000 to $849,000, where if it had just the one price of $849,000, the agent wouldn’t see it.
How is it working? Here are the stats for the NSDCC detached homes sold in September, 2013:
Total homes sold: 259
Number of listings that used value-range pricing: 67, or 26%
Average SP:LP, using the bottom of range: 101%
Average SP:LP, using the top end of range: 94%
Number of sales closed under the bottom of the range: 16, or 24%
In September, the average sales price was just barely above the average bottom price of the range. Almost a quarter of the sales prices were under the low end.
Here is the comparison of the sales using the value-range pricing, vs. those using just one price – it looks like the MLS is using the top-end of the range for their statistics:
One List Price
Number of Sales
Those who use the value-range pricing can expect buyers to gravitate to the bottom of the range. The listings with the extra-large ranges have trouble trying to bridge the gap – the recommended gap is 6% to 8%.
Many buyers see the bottom of the range and want to go down from there, and others are turned off altogether. Furthermore, the main listing websites use the top end of the range only. Sellers beware – use the value range with caution!
There hasn’t been much hesitation around Carmel Valley, though the designated school, Ashley Falls, had to help this sale. An inferior model-match closed for $975,000 in February – but this still went pending within 7 days:
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.
“Because markets are tight, we are still going to see solid price increases through next year,” Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, said in a telephone interview yesterday. “Eventually, the growth rate in prices is going to slow down.”
Which was replaced by this quote an hour later:
Competition for a limited supply of available homes has been fueling price gains across the U.S. The increases will slow as higher values draw more sellers to the market, adding to the inventory, according to Paul Diggle, property economist at Capital Economics Ltd. Prices will rise 8 percent this year and 4 percent in 2014, the firm projected.
“Supply is loosening, and clearly that is why it’s going to be a slowdown,” Diggle said by telephone from London. “A lot of people delayed selling at the bottom of the market. As prices rise more, people are in the position to sell.”
The ivory-tower guys agree about appreciation for now, but slowing. The safe bet for all national pundits will be 4% to 8% appreciation in 2014.
So I might be out on a limb by myself, but I’ll stick with my zero-appreciation for NSDCC in 2014, almost solely due to my expectation of rising inventory. We’ll know if sellers are rushing to market by mid-to-late March.
Frenzy exhaustion is causing buyers to re-calibrate. If the inventory does rise, it will strengthen the buyers’ resolve to not pay more than the last guy.
What do you think the appreciation will look like as we plateau? Given 21% yoy in sd, half of that or 10% in the next 12 months and halved again or 5% for the 12 months after that or a steeper drop off? Also zillow not only had their zestimate but also their appreciation forecast. How accurate do you think their forecast is?
We did the same frenzy-to-plateau at the end of Summer, 2004. Countrywide had kept the market pumping with interest-only loans, and when the market began to stall, they rolled out their toxic neg-am mortgages. Later they just went to no-doc, FICO-only qualifying, and squeezed out another 2-3 years worth of business, while the median sales price levitated between $450,000 and $500,000:
I don’t think the increase is going to continue this time, and predict that the SD median price will stay in a range of $400,000 to $425,000.
In other words, not much appreciation for the next 12-18 months.
Why will pricing slow down? We’re overdue for more inventory.
The one constant in all markets, good or bad, is that sellers hold out for top dollar. Now that prices are stagnating, sellers who decided to wait for more money are inching closer to the launch button. Their wives are telling them, “you better not screw it up again, like last time.”
I’m guessing that we will endure a flood of inventory next spring.
A flood? Why?
Here’s who will be coming to the party:
1. Banks won’t panic, but there will be more spring in their step.
2. Flippers will panic, but try to hide it.
3. Previously-underwater folks.
4. People who did the loan-mod-for-now program.
5. Legitimate move-up sell-and-buyers.
6. Early-stage baby-boomer liquidations.
One factor that might keep a growing inventory in check is that the recent purchasers won’t be involved. The SF FED touched on it yesterday as a possibility, but those on the ground know it to be a fact – today’s buyers are in for the long haul. There won’t be any panic selling by those who purchased in the last 6-36 months, which should help to temper the impact.
My guess for 2014? Appreciation will be close to zero around NSDCC.
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