Moving Checklist
What A ‘Slowing Market’ Means
Realtors are saying that the market is slowing, and Marc D. suggested that we define what that means:
A slowing market is when fewer active listings are priced to sell.
It is a result of…..
Fewer buyers – Higher mortgage rates priced out some or most of the buyers hoping to finance their purchase. They are simultaneously hoping for prices to come down to compensate, and/or in the process of making other adjustments like considering smaller homes, widening their target zone, or offsetting higher rates with bigger down payments or an adjustable-rate mortgage. All of which take time, so more buyers than ever are in the wait-and-see mode, which means…..
Fewer sales – as more buyers move to the sidelines, it’s disrupting the incredible sales flow we’ve enjoyed over the last two years where virtually every home that came to market has found a buyer with relative ease. A new listing that previously had an 80% to 90% chance of selling in the first week now has a 10% to 20% chance of selling that quickly (example: there are 345 NSDCC active listings today, and there were 33 new pendings in the last 7 days), which means…..
Longer market times – with more unsold homes lying around, it gives buyers the impression that the ‘slowing market’ could mean lower prices are coming, which makes them more cautious. The longer a home is on the market, the more pressure is on the seller to do more improvements, or lower the price. Or they can also choose a third option and just wait in line and hope that they are moving slowly up into the group of 10% to 20% of active listings that have a chance of selling this week. This option is dependent upon the newest listings being more optimistic on price than those unsold currently, but because they have more recent data available on the perils of over-pricing, the newer listings should be sharper on price, not worse.
A slowing market means we have transitioned from the one-time-in-history event where every home sold quickly, to the old reliable sellers-waiting-in-the-queue, hoping for their lucky day to come.
With only 10% to 20% of the actives selling each week, it is inevitable that the unsolds will start stacking up as both sides wait longer for their lucky day. For some sellers, that day will never come, and they will cancel their listing instead.
Knowing that sellers will still insist on getting their price or close, how can buyers and sellers both know how close a home is to selling?
List-Price Accuracy Gauge
- If you are getting showings and offers, the list price is within 5% of being right.
- If you are getting showings but no offers, the list price is 5% to 10% wrong.
- If you aren’t getting showings, the list price is at least 10% wrong.
The best thing a seller can do is to lower their price so they at least get out of the bottom tier – you need to have showings to have a shot at selling. The market is still hot (see map at the top), there just aren’t as many active listings that are worthy of the attention of buyers. The sellers are still in control of the marketplace, and it will be their reaction to wrong pricing that determines the outcome – as measured by the sales count.
Back in the day (3-5 years ago), there were 10:1 actives to pendings in the high-end markets like Rancho Santa Fe, an area where sellers have always been content to wait as long as it takes. I’ll never forget the RSF listing agent who proudly asserted that her one-year anniversary of her listing was coming up! Some people don’t mind being on the open market and not selling – they are only motivated to move if they get their price, which is fine. Hope you get lucky!
Sellers will be hanging around for weeks or months, hoping the mythical market conditions improve and that lucky couple with 2.2 kids shows up, rather than go to work on their pricing. As their lease comes due or the start of school gets closer, the waiting buyers will anxiously decide whether they will step up and make an offer, or keep waiting for the mythical two-in-the-bush that might be a better value.
This is the Big Standoff whose intensity will be measured by the number of sales that find the sweet spot of being within +/- 5% of the latest pricing trend. The vast majority of sellers won’t sell for less, and buyers will be very reluctant to pay more than 5% above comps.
Frenzy Cruise 5
While the market may be calming down, there are still properties selling for well over the list price!
Inventory Watch
Once we got past the Memorial Day weekend, the unsold listings continued their climb. Here’s how the first week in June compares to previous years:
NSDCC Listings, First Monday in June:
| Year | ||||
| 2018 | ||||
| 2019 | ||||
| 2020 | ||||
| 2021 | ||||
| 2022 |
These are the stats from an ultra-low inventory environment, which we’ve never seen before. I’m sure there are sellers out there who haven’t had a showing yet. Consider the current market conditions, and act accordingly!
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One-Story on Acre Lot
This listing hit the open market on April 18th, which was long after mortgage rates had gotten into the 5s. It went pending in the first ten days, but then it fell out of escrow three weeks later. By then, the doomer talk had escalated and reviving the market urgency would typically be more of a struggle.
They stuck with the $3,995,000 list price though, and another buyer snatched it up the next day and closed in two weeks at a slight discount of $3,850,000 cash:
There might be some turbulence in the marketplace being caused by the incessant doomer talk, but I haven’t seen any quality homes having to sell at a big discount yet.
New York City!
We are in New York City with daughter Kayla, her boyfriend Frank, and Rob and Andrea, the sellers of the Encinitas Ranch house who relocated to Brooklyn. Here’s a tour of the home that Kayla sold them!
Encinitas Big Bomber
This is the only other sale located on the Encinitas Ranch golf course that might be considered a comparable sale, but it’s a completely different offering. The house has 5,200sf with pool on a half-acre lot – with no threat of golf balls hitting you while in the backyard.
My buyers thought the price – which was more than a million dollars higher than my sale – was aggressive and not worth it. But as we have seen throughout the coastal region, a cash buyer stepped up and paid the full $4,785,000 price for it seven days after the listing was refreshed:
It closed escrow yesterday, so it’s doubtful that Zillow – or any buyers – would use it when evaluating homes in regular Encinitas Ranch. But if they did, they would be radically over-valuing the more standard tract houses there!
https://www.compass.com/listing/1202-via-zamia-encinitas-ca-92024/1012366247845475561/
Zestimates in the Post-Frenzy Era
Let’s revisit Encinitas Ranch for an example of how the zestimates will affect the post-frenzy era. Consider the ER comps since my $3,760,000 sale closed in November.
This is where the algorithms should perform beautifully because there have been eight sales of similar tract houses built at the same time on similar sized lots and views. All eight of these sales closed at prices at least $200,000 below my sale.
If zestimates are accurate, ours should have dropped to at least $3,500,000, and there is a model-match sale at $3,050,000 in March – the height of the frenzy.
What does Zillow think?
What they are doing to the marketplace should be criminal, because buyers and sellers both want a quick value check to verify their hopes and dreams – yet even in the very typical tract neighborhoods, the zestimates tend to be way off.
What’s worse is once a home goes on the open market, they reset their zestimate to be close to the list price so no one can tell how wrong they are.
Is it feasible that the traditional way we’ve determined home values gets phased out, and we just let our masters shove garbage down our throats? Absolutely, and because the real estate cycles have been eliminated, we won’t know the difference.
18% Over List
This is more evidence of how popular the homes with bigger yards and a pool on a culdesac are – so popular that this buyer paid $401,000 over list for this Carlsbad property:
End of Buyer-Agents
Previously I said that buyer-agents are getting cut out of the action.
There are so many reasons why:
- Commissions are grinding down. Buyer-agents have to sell more, to make the same $$.
- Working at higher price-points requires advanced skills. Can agents improve?
- Are you good enough to convince the buyer to pay your fee? It’s coming.
- Fewer listings will be exposed to the buyer-agents, and to the public.
Smart sellers who offer a bounty, or reward, to agents will attract the most eyeballs, buyers, and offers. It is a system, powered by the MLS, that has worked well for decades. But it is coming to an end, sadly.
The pending lawsuits against NAR and major brokerages will likely cause the de-coupling of the commissions, and sellers won’t be able to offer a bounty (commission) to buyer-agents.
But buyer-agent commissions have already been dropping over the last two years, in part because the listing-agent teams don’t respect or care about outside buyer agents. During the frenzy, the listings sold themselves, so why not just keep most of the commission? Or all of it?
What will happen post-frenzy?
The frenzy conditions that pushed prices much higher have devastated the move-up/move-down market. Homeowners love living here, and if they have to leave town to make selling their home worth it, they aren’t as interested.
As a result, it looks like the amount of listings will keep dropping:
Detached-Home Listings between La Jolla and Carlsbad
| Year | ||
| 2017 | ||
| 2018 | ||
| 2019 | ||
| 2020 | ||
| 2021 | ||
| 2022 |
Even after mortgage rates rose dramatically, the number of new listings last month were way below previous months of May. As it gets more difficult to sell and potential home sellers get discouraged about not getting astronomical sales prices, the listing counts could dwindle further.
In the squeeze, listing agents will get more desperate and choose not to share their hot new listings with outside agents, or even within their own brokerage. Buyer-agents who are dependent upon the MLS for homes to sell just won’t have any product.
It’s already happening – the homes you see on the open market seem like the leftovers. It’s already happened with commercial listings on Loopnet, and new-home tracts don’t want to pay buyer-agents at all:
It’s inevitable that the same mindset will infiltrate the residential resales too. Buyer-agents will get squeezed out because nobody wants to pay for them, regardless of how valuable their service might be.
Speaking of infiltration, the impact of OpenDoor probably deserves its own blog post. Because NAR sold our website realtor.com (the best thing we had going for us) to a third party, other entities are now advertising their services on realtor.com that will take away business from realtors.
Input an address of a lower-valued home onto realtor.com, and you’ll see something like this:
As listing counts erode, the desperation among agents will heighten. Buyer-agents will be the first casualty, and then buyers and sellers will feel the pinch too as the MLS dissolves and private websites are used sell homes privately:
https://www.mikedp.com/articles/2022/5/24/the-opendoor-mls
The frenzy interrupted the need for off-market sales because all sellers and listing agents wanted to go on the open market for the thrill of a bidding war. But as the market gets tougher, the off-market sales will likely resume. In the process, the buyer-agents will be the first to go, and because there are already way too many agents (at least twice as many as we need), many other agents will face an early retirement too.
