By Carl Clark
The sellers’ market has peaked for the Beach Cities. If you’ve been waiting for the “top of the market” before listing — this is it!
Real estate is the quintessential example of the law of supply and demand. Ideally there would be one buyer for every seller in the market. That way it’s given the property will sell. The only discussion is over price, and because there’s no competition, the dollars are by definition fair because it resulted from agreement between “ready, willing and able” parties.
Most of the time that’s not the real world. As you can see in the August chart above, daily fluctuations can make a chart look like sales are leaning toward sellers. In fact, the red trend line shows the longer term trend has shifted from a flat line, to a downward line, more favorable to buyers.
The chart below shows available inventory, confirming the market slowdown. In just eight months the number of homes available has risen from ~400 to ~1000.
Looking back at 2017, we see the precursor to this market shift. Throughout the year more and more homes came on the market, as sellers became more anxious about the impact of rising interest rates. Concurrently, more buyers dropped out of the market because they could no longer afford to buy. By the fourth quarter, buyers and sellers were approaching the one to one ratio.
January of 2018 the center shifted and there were more sellers with homes available than buyers able to buy. The difference is miniscule at this point. It won’t be ‘statistically significant’ for a long time yet. The most important thing to note is the impact to local prices.
Without bidding wars, prices increase at the rate of inflation. This round of bidding wars has ended. Buyers are now writing offers at asking price, or a little less.
So, statistically we can say there is probably going to be one buyer looking for a home just like yours. The next most important factor is the time it takes your broker to find the buyer for your property. Sellers, like everyone else, have a timetable to be concerned about. You need to know whether it will take two days to find a buyer and six weeks to close, or if it’ll be six weeks to find a buyer and six more to close.
In theory we could look to Average Days On Market (ADOM) to estimate the time between your listing date and Close Of Escrow (COE). Unfortunately, sometimes the ADOM reports how long it took to get an offer, sometimes how long it took to close escrow.
There’s no way to programmatically derive the time it takes to sell a property. Experienced brokers will have a good idea based on personal experience. Careful agents will have analyzed comparable sales to manually determine the time on market for those homes.
What is expected for the longer term? Most forecasters are saying the traditional 10 year real estate cycle will be extended this time because the recession had significantly more impact than is usual. Some are predicting a short downturn starting late in 2019 and ending in 2020. Others are saying sales and prices could remain flat until 2020 when prices will begin to drop.
In reality, the Great Recession was a blow to the US economy not seen since the Depression. Coupled with the fast swirling political waters of the nation, most financial rules and expectations have lost validity.
One of the most important changes over the past few years has been the isolation of local market conditions. For example, here in the Beach Cities we have been seeing record high prices for quite some time. In contrast, the homes in the Central Valley are still priced below pre-recession highs.
My best guess for our local market is a continuing gradual slowing of sales and drop in prices this year. The second half of the year should look very much like the first eight months.
A caveat: Real estate is not subject to tariffs, but wars, whether trade wars or real wars, have a way of impacting far beyond their anticipated reach.
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