How do you know when the Market has changed?

Ever since the internet changed the Real Estate business, speculating on pricing has become a topic everyone likes to be an expert on. My last post shared how strong the market had become by mid-Spring, really changing from a Buyer market to a Seller market seemingly overnight. Well guess what, the market has changed again! The tricky part is understanding how, where and what it means for the balance of 2013. First, some are going to question whether this is even happening. I understand that, because if you read almost any media source it is overwhelmingly positive for future price appreciation. They point out that median prices are up 25% over last year, that there are shortages of inventory in many markets, that homes are being sold without an appraisal contingency and that the amount of distressed sales has greatly diminished! All of this and more is true. Still, here is how I, and many agents that agree with me, know when a market is changing. First, inventory starts to rise. In April, our valley had about 260 homes for sale, a virtual all-time low. Today, there are just over 500. Second, new escrows or “pendings” diminish. In the Spring, we had twice as many escrows as listings, a sure sign that homes are selling as fast as they come on the market. Today, it is much more in balance. Third, great new listings come on the market and don’t sell in the first few weeks. It may seem silly to just expect that, but we do. Other signs include: price reductions, which began in June and have increased in volume ever since; homes taking longer to sell; buyers not accepting counter offers and homes falling out of escrow when buyers walk away. All of these things are happening and are signs of a market going from 100% a Sellers market to much more balanced one.

So the market is flattening out, but not everywhere. If a seller with a $900,000 home, talks to a seller with a $400,000 home, their experience is going to be completely different. The reasons for this are simple. 80% of our sales in Santa Clarita this year are under $500,000. Simply stated, that is where the buyers are. The average time it takes to sell a home between $400,000 – $500,000 is 41 days, over $800,000 it is 148 days and over $900,000 it is 225 days! It is almost like being in 2 completely different markets, and in reality they are, even if they live across the street from each other. So why is this important? Well if you aren’t selling it may not be, but if you do want to move, it is critical to understand the proper marketing  strategy which I believe will  hold true for the next 6 months.

In April, I would tell every potential seller that there are two strategies to pricing your home. Strategy #1 – price it right about where we felt the market was (which was often higher that they expected anyway), and market for multiple offers that take us over the asking price with no appraisal contingency. Strategy #2 – was to price it higher than market value and wait for the market to come up and meet that price. In April, this approach worked for virtually every Seller. Today, however, strategy #2 would likely be the wrong approach for someone in the upper price ranges. They would sit on the market for a month or two, get no response and then be forced to reduce. The problem (beyond the obvious hassle of being on the market so long) is that the longer a home is on the market, the less it is worth in the eyes of a buyer – especially after 4 to 6 months. The right approach, today, for the higher priced Sellers is absolutely strategy #1. For a Seller under $500,000 (especially under $400,000), there are still way more Buyers than there are quality homes. A good property still receives multiple offers and often sell quickly. They can try either pricing approach and, for now, still be ok. Understanding where the buyers are, how each neighborhood is different from a demand point of view and if you can still push your price due to lack of competition is something that is literally determined month to month. For the balance of the year, lower price point homes can look forward to pushing prices and quick sales. However, if you are above $500,000, it is critical to know if this is even possible for you. It many cases, it may not be.

In conclusion, it is relevant to point out that this is all normal! Historically, it always slows mid-Summer with the balance of the year typically being steady, but not spectacular like the Spring. It is funny how easily we can get spoiled, especially after 7 years of price declines! In the Spring I mentioned that the only thing that I could see cooling off the market was rising interest rates essentially raising the cost of home ownership. Well, that happened! If that continues it could affect all price ranges, especially if inventory continues to build. For now, though, this is a lot like most normal markets. Homes should take a month or two to sell. 500 homes, though double three months ago, is still a relatively low number for a valley of our size and is certainly not too many. It is all perspective.  Some Sellers, however, are not aware of these changes.  They have listed at a price that likely is not possible. We started seeing this in May/ June and many are just sitting there today. If they are over $500,000, it is likely that they will need to reduce, or see what 2014 offers.

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