It’s tempting to believe that it just takes longer to sell now. It’s brought on by the common thought among most home sellers; “Heck, I’m in no rush, I don’t need to sell, and I’m not giving it away!”
This is especially true for the higher-end homes.
I’ll never forget the RSF agent a few years back who mentioned that her listing was having its 1-year anniversary, and she spoke about it with pride, like it was her child having their first birthday. But we’ve been hired to sell the home, not just stay busy with showing it forever.
There is a fact about real estate sales in every market, everywhere:
The home that is the best buy in the marketplace will be the next one to sell. The reason your home isn’t selling is because the other homes for sale are offering a better value.
In a market that is trending upward, you can put a higher price on it and some day the market will come up to meet it – eventually the future sellers will price their home higher than yours, and finally make your home the best buy in the marketplace.
But in a downward-trending market, the market can get away from you quickly.
The listing that is priced 10% too high today will look like it’s 15% or 20% too high in a month or two. It’s why the showings stop completely – buyers have forgotten all about you because the price looks worse every day that goes by. It puts the seller in a position to ‘chase’ the market down with price reductions.
We’ve had an upward-trending market for the last 12 years. Those who priced their home too high have gotten away with it, because the market eventually rose high enough to meet them, and their price. The worst part is that people now just think it’s a fact that if you wait long enough, a buyer will come around and pay your price.
It’s probably still true, but instead of taking months to sell, it could take years.
If you are willing to wait for years, don’t put your home on the market now – wait until it’s obvious that your desired price would make your home the best buy in the neighborhood.
It’s doubtful that many will take this advice, and it’s why it’ll be likely that there will be over-priced turkeys (OPTs) starting to pile up in May/June. The selling season could get hot for a couple of months, but then get submarined by the growing amount of unsolds that don’t adjust on price.
Unless rates slide into the 4s, and bless sellers and agents with more frenzy!
Home sellers and agents need to decide on a pricing philosophy.
Do you price it high, and hope for the best? Or do you price it attractively and sell it promptly?
During the frenzy, pricing high was recommended because you couldn’t go wrong – everything was selling, and the worst case was settling for list price. Most sold over. But it’s different now, and you don’t want to be sloppy about price.
If a house doesn’t sell in the first month on the market, the buyers think the price is wrong, and will lowball – and you can’t blame them (wouldn’t you do the same?). The longer on the market, the worse it gets.
Let’s discuss it openly, for everyone’s sake.
If the list price is within 5% of being right, the house will sell in the first 30 days on the market. There is 5% of slush in every market, and there aren’t enough other sales nearby to say otherwise.
Let’s work it backwards. If the house doesn’t sell in the first 30 days, we know the price is at least 5% wrong. Because buyers are going to be conservative, they will want an additional 5% discount to feel secure.
After 30 days on the market, expect a 10% discount.
Sellers can object and try to fight it, but it will take luck to beat the odds – because the quality buyers are paying attention now, and without rising prices forcing them to make hasty decisions, they would rather wait, than to jump – especially when no one else has bit in the first 30 days.
After 30 days on the market, expect a 10% discount.
If it were a widely-publicized fact that pricing attractively avoids future peril, and if we all agreed that the 30+ day penalty was identified as -10%, then sellers could properly calibrate their expectations.
After 30 days on the market, expect a 10% discount.
If you want proof, here is my last graph that charted the NSDCC November sales:
If everyone – buyers, sellers, and agents – knew a discount was necessary after 30 days, the market would behave in a much more orderly and predictable way!
There shouldn’t be much new action for the rest of the month – it would be crazy to put a new listing on the MLS in the next 2-3 weeks. It means the current inventory – the lowest it’s been since May – couldn’t be any more picked over by those who don’t trust the Fed and were hoping to get lucky with their lowball offer and lock their rate in 2022.
This is the time of year that the ivory-tower types are issuing their forecasts for next year (NAR has a wrap-up coming tomorrow). But I’ve never heard so many people saying they don’t know what to expect in 2023. But isn’t it predictable?
Neither buyers or sellers will want to be the first to explore the new year, and because we’ll be having the lowest inventory in history, we’ll get off to a sluggish start. If there was finally a surge of boomer liquidations, it would help, but don’t get your hopes up. I would expect the seniors to be the last people to hurry up and get their home on the market early.
I expect a slow start as sellers ignore the recent market conditions and want to test the new year with exuberant list prices. As a result, only about a third of the new listings will actually sell, setting up a potentially stagnant market by May/June as the OPTs start to stack up.
This will be the first selling season in three years that pricing will be crucial!
This is how close we are to a market resurgence. If sellers would pay down 4% to 6% of the loan amount to lower the buyer’s mortgage rate by another 1% to 1.5% and get it into the 4s, we’d be looking good for springtime.
From JB:
In early December, 75% of nationally surveyed home builders confirmed they are buying down buyers’ mortgage rates to make payments more affordable.
Our survey indicates 32% of builders are buying down the full 30-year term and another 30% of builders are temporarily reducing the rate for the first two years of the mortgage. The remaining 13% of builders identified other less common buydowns. Builders pay these costs up front, effectively reducing monthly payments by prepaying for some of the buyers’ interest on the loan. Few resale sellers are offering these savings to prospective buyers.
Two popular strategies involve builders lowering the mortgage rate for the buyer:
30-year rate buydown: Builders are contributing 5%–6% of the home purchase price up front to lower the 30-year mortgage rate by 1%–2% typically. For example, builders may reduce the rate from 6.5% to 5.0% using last week’s Freddie Mac mortgage rate.
2-1 temporary rate buydown: Builders are contributing 2% of the home purchase price up front, which lowers the first-year mortgage rate by 2%, and the second-year mortgage rate by 1%. Using last week’s 6.5% rate, a buyer’s rate would be 4.5% in year one, 5.5% in year two, and 6.5% thereafter. Borrowers still have to qualify at the 6.5% rate to benefit from a reduced payment in the first few years, giving them some breathing room to perhaps spend money on furniture or other needed items.
Because buyers have to qualify at the highest rate that will occur during the 30-year term, builders using the 2-1 temporary buydown tell us some buyers still cannot qualify. By shifting to a 30-year rate buydown, builders can lower the rate and monthly payment used to qualify struggling buyers.
Read the full article with more calculations here:
Ivy covers all the topics in this recent interview. The most interesting was her graph above that shows how much quicker sales have declined this year, compared to the last downturn.
She is expecting -12% in national pricing, and -20% in sales next year.
The different topics are identified in the red line at the bottom of the YouTube, and I started at Pricing:
Realtor.com is forecasting that the San Diego-Carlsbad metro area will have prices dropping 27% in 2023, but also conclude that fewer sales (-23.7%) will make our area more affordable. They combine the two and call it +3.6% combined growth.
They base their forecast on the lack of affordability, which ignores how many, if not most, buyers are using a hefty down payment to keep their monthly payments more reasonable.
If there was a severe price dump in 2023 like they are describing, the sellers wouldn’t go for it, and the inventory would dry up. Just about every potential seller has to be thinking that they have already given up a certain percentage of their equity in 2022 (off their inflated sense of value), and waiting it out sounds way better than coughing up another 20%.
But this is the type of garbage that could get into people’s head, and whether it’s realistic or not doesn’t matter as much as the perception. Thanks Realtor.com!
There are concerns that lower pricing will cause recent home buyers to be underwater – and potentially create another bubble to pop. A factor to consider when assessing the current market conditions is how quickly the affluent buyers have taken over the marketplace between La Jolla and Carlsbad:
NSDCC Annual Detached-Home Sales
Price Range
2017
2018
2019
2020
2021
2022
Under $1M
1,040
706
667
543
120
20
$1M-$2M
1,475
1,505
1,552
1,784
1,621
684
$2M-$3M
384
383
405
518
766
588
Over $3M
232
236
244
385
724
607
Totals
3,131
2,830
2,868
3,230
3,231
1,899
We’re not done with 2022 but there will only be another 80-100 sales to add to this year’s total.
Two thoughts:
The recent buyers had to qualify for financing (if any), and with virtually all of them paying over $1,000,000, they are probably flush and not many will get spooked into selling.
When only the rich can participate, we won’t be having as many sales – with hardly any opportunities for the regular folks who hope to buy under $1,000,000.
Yes, if pricing keep coming down, there will be more sales in the lower-priced categories. But how many more under $1,000,000 next year? Forty? 80? It’s very unlikely that we will get back to the 2021 number, let alone have hundreds of homes selling under $1,000,000.
Not only will the inventory be lower, but the closed sales will probably decline next year too.
Winehouse released her follow-up album, Back to Black, in 2006, which went on to become an international success and one of the best-selling albums in UK history. At the 2007 Brit Awards it was nominated for British Album of the Year, and she received the award for British Female Solo Artist. The song “Rehab” won her a second Ivor Novello Award. At the 50th Grammy Awards in 2008, she won five awards, tying the then record for the most wins by a female artist in a single night and becoming the first British woman to win five Grammys, including three of the General Field “Big Four” Grammy Awards: Best New Artist, Record of the Year and Song of the Year (for “Rehab”), as well as Best Pop Vocal Album.
Winehouse struggled with substance abuse and addiction. She died of alcohol poisoning on 23 July 2011, at the age of 27. After her death, Back to Black briefly became the UK’s best-selling album of the 21st century. VH1 ranked Winehouse 26th on their list of the 100 Greatest Women in Music.
Guesses of the percentage change in the 2023 national home pricing from today’s free WSJ article:
NAR: +1.2%
NAHB: +0.7%
Fannie Mae: -1.5%
Goldman Sachs: -7.5%
Ivy Zelman: -12% (peak-to-trough in late 2024)
John Burns: -20% (peak-to-trough in late 2024)
KPMG: -20%
The article doesn’t cover any new ground because nobody wants to commit to how this plays out.
But I’ll give you my opinion.
Prices will keep declining until realtors tell their sellers that they need to sell in the first week or two on the market, or get lowballed. To do so, they need to make their home look spectacular, price it attractively, and make it easy to show. To really improve your chances, offer a competitive commission rate to buyer-agents. Then the realtor needs to employ terrific salesmanship, and find a qualified buyer quickly.
