Dave’s Column June 2019
Oh, the stories I could tell…. if I were striving for sensationalism like most media reports I’ve seen thus far in 2019. The market can really be summed up simply: it’s more balanced than it’s been for some time. Buyers have more leverage, but sellers still have a good opportunity to sell in a very reasonable timeline, for a good price.
Here are some statistics to back that up:
Metro-wide inventory is up almost 25 percent, sales are up about 2 percent. The shortage of inventory has lessened considerably. We are now at about a 67-day inventory at the hottest point of the year. A 90-day supply is generally considered ground zero for a balanced market.
My predictions for the rest of the year:
This summer is going to be an opportunity market for buyers. Generally, the market slows in the summer giving buyers more leverage. That leverage should be higher this year than last.
If interest rates drop much more, the days’ supply of inventory drops to about 55 days. I think a reduction in interest rates will accelerate buyer activity and there won’t be a big uptick in homes for sale to completely compensate.
If rates don’t drop, the market will continue to stabilize and move slightly more in favor of buyers.
The entry level market has passed its peak in terms of rate of annual appreciation, and in some areas, its peak in value. The average rent for a two-bedroom apartment is still about equivalent to, or slightly above, the mortgage payment on a townhome or condominium priced at $250,000 including HOA dues.
The pushback that’s causing prices to stabilize is what $250,000 typically buys. Buyers will tolerate some sacrifice in location, size and condition but we’re starting to see little that justifies spending $1,700+ per month.
Here are a couple of things that do concern me:
- The reporting method of companies that are buying direct from sellers
If you track public records these sales appear to be reported at a gross sales price versus the net they actually pay the seller. For example (based on a real-life example) – the gross price was $500,000 but at closing the seller received around $460,000 ($500,000 minus the 7% fee they were charged and another amount for inspection items). The house then goes back on the market at $525,000 within two weeks of the closing and eventually resells for $490,000 or less. What you now have is a history in public records that indicates a significant depreciation in the value of real estate over a very short period. While these companies do not get a large portion of market share, eventually these records could create a false narrative of market decline. That could have very concerning effects for sellers by creating the impression of downward pressure on real estate values.
- Over pricing leading to price reductions.
I have seen up to 30% of properties sold in a short period undergo price reductions prior to selling. This too can create a false narrative of homes values declining. Pricing a home properly is as important as ever. This is still an appreciating market however, it’s a fine line between pushing the envelope and over pricing. The results of over pricing almost always result in a lower final sales price.