DISCUSSION:
The 2007 sales year has begun. Sales for December 2006 were off 24.5% from the previous December and the year finished down over 9% with existing residential homes and patio homes down 10.2%. January, 2007 appears to be a month almost exactly like January, 2006 which is a promising beginning: There were 673 sales in January, 2007 compared to 676 sales in January 2006. The average selling price was almost the same as well, less than 1% higher in 2007 at $252,929. A 2% gain in median sales price ($206,000 increased to $209,900) rounded out figures that look like a statistical overlay from twelve months prior. Twelve months prior, most analysts were bullish on the
For the purposes of short-term discussion, January data temporarily slows what had been a significant downward trend on units. While January is technically the eighth consecutive month of fewer monthly sales than the year before, the less than half percent decline is a marked improvement from the previous seven months. By comparison, unit sales the last six months of 2006 were 21% fewer than the final six months of 2005.
The cooling house values, with flat appreciation compared to the year before is a new trend. It is indicative of a value-focused marketplace. January purchasers are typically more value conscious in general, and the sale price divided by final list price (the price differential) was 97.9%, half a percent below the 2006 annualized average. In real world terms, that reflects an additional $1200 of negotiating room on the average sold property. Additionally, the average sold property sat on market considerably longer than any time in the previous year, averaging 95 days before selling.
Where there will continue to be problems in the marketplace are among unreasonable sellers requesting unreasonable values for their average residence. Sellers can ask whatever they choose, but ultimately a buyer determines a home’s real value. In January, the average sales price was $253,000 (the buyer’s average value) but the new January listings averaged $293,846 (the seller’s average value). Northwest and
Why is this important? The tug of war between buyers and sellers continues. January is commonly a month when sellers make the mistake of “testing the market” and placing their home for sale at a value that they know is artificially high because they have a perception (right or wrong) that they can take their time in getting a contract. Most January and even February sellers are planning to move in the spring and possibly as late as May or June and have the belief (right or wrong) that they can reduce their price later and instantly sell. The reality is that buyers that are looking now are motivated buyers and have likely seen several months of properties that did not suit their tastes. They are anxious to commit to something, but they refuse to consider a seller that starts on the market with unrealistic expectations. So on the other end of the price rope, buyers are tugging on the homes that are priced below their competition or are bringing very low offers to sellers that have sat on the market in excess of 100 days. It is not uncommon to see in a set of six sold properties three properties that took more than 100 days to sell and three properties that took less than 20 days to sell. In the case of the former, the over 100 day crowd, several price reductions and elongated negotiations were necessary to get the property sold. It is not uncommon to see 5 to 12% total price erosion from the initial asking price on these properties, and that’s in addition to the wasted months of mortgage payments and emotional frustration of waiting for a buyer. In the case of the latter, the 20 day and under crowd, properties can still sell with multiple offers. The properties that sold quickly usually did so at a value as high as anything comparable in their neighborhood, which meant that they sold for maximum dollar and did so without wasting additional months of mortgage payments. Sellers that attempt to pad the going rate by asking for additional dollars will often be ignored and not only refused contracts, but even showings.
To further amplify this point, a quick glance at expired listing data tells the tale of asking too much and never selling. January 2007 had 650 expired listings and 673 sold listings. No matter what the anomalies might have been, a 1 to 1 ratio is startling. After 206 days on market (on average) these properties had an average price of $307,000. When the same month had an average sales price of $253,000, a reasonable consumer will conclude “that’s the problem right there.” However, the average new listing was only 4.4% less in price than the average expired listing in January. That makes it abundantly clear that a lot of sellers, in fact, the majority, are choosing to price their homes above buyer expectations. Properties that have to reduce their prices by tens of thousands of dollars in order to sell are not symptomatic of price depreciation; they are symptomatic of unreasonable expectations when they debuted on the market. Properties are appreciating slowly, but they are appreciating. A clear, educated picture of the market dynamics can help 1.) a buyer recognize marketplace value and 2.) help a seller speak the language of the value-focused buyer.
Advice for:
SELLERS: Be realistic, be tidy and be prepared. The market will deny a seller any opportunity to sell if the seller has missed their price, cannot make the home available for all showings, and if the home is in less than pre-owned condition. Buyers have an amazing number of homes to choose from and 17 percent are newly built. If a seller prices their home competitively and removes obstacles to purchase, they can still sell at or near all-time value highs.
BUYERS: Be opportunistic, but be educated. Why this is a tricky market is that it is very easy to buy the wrong house. There aren’t many foreclosures out there worth buying, many foreclose at values near or above their actual market value. Know your most important values in a residence going in, get educated on the market values, conditions and trends of the neighborhoods you’re looking at, and be prepared to pay asking price if the home is at market value.
BUILDERS: Value, efficiency and modern design are extremely important, and consistent customized features of a home throughout the residence will improve a chance for sale. Buyers are willing to pay more for new but they’re also expecting a lot more. Properties that have dressed up kitchens but an average or below bath are less likely to sell at any price. The value placed on lot premiums is being scrutinized due to supply and buyer options. Building a spec home “to a price point” may not work due to the surplus of new homes and many builders willingness to negotiate or provide incentives to purchase.
INVESTORS: The market will likely be fairly stagnant with 2 to 5% appreciation in 2007. But apartment vacancies are less than 11% right now. If that number goes below 10%, rents will likely rise. With the combination of sellers needing out of homes, low rates, and a demand starting to exceed supply for rental housing, a long-term investment would be well-considered this year. Due to low appreciation and abundance of for-sale supply, fix and flip will probably be fix and flop.
CONCLUSION:
Right now, many sellers are making unreasonable business decisions. By ignoring the forces of the marketplace, they are pricing their homes to stay on the market for an extended period of time at a price well-above any historically charted territory for their neighborhood. In reaction to viewing an inventory of over-priced properties, buyer activity is characterized as being hyper-reasonable. Buyers will not even look at properties that are overpriced and will not view kindly any property that is in less than ideal condition. However, there are more reasons for sellers to be optimistic in early February, 2007 than any point in the last nine months. Late December, 2006 through January, 2007 saw horrible weather conditions and record cold temperatures… and the market produced a number of sold units that was only three units shy of the previous January. This “basically” stopped a trend of reduced monthly unit sales that had been in place for eight consecutive months and did so during a time when even viewing a property was very difficult. Additionally, the data paints a clearer path to success for a seller: price it right, have the home clean, tidy and smelling good and it will sell. For buyers, the benefits are similar: they can purchase a home at a fair price that should be in good condition, and utilize interest rates that remain below 6% for a 30-year fixed rate.
Selected data and data relationships to note in January, 2007:
- (Good) Residential sales were only off three units (673 to 676) when January, 2007 data is compared to January 2006.
- (Neutral to Bad) There is still 7.5 months of inventory on the market. This is an improvement over previous months however, and is inline with the national average.
- (Neutral to Bad) There are 5052 properties on the market.
- (Bad) The number of new construction properties on the market is almost 900 units.
- (Neutral) The average sales price is $253,000 and appreciation is flat.
- (Bad) Number of Expired Listings in December: 650.
- (Neutral to Good) The average price differential for the month was 97.9%, just about the same as the 2006 average. Since many of the sales in January were of properties that sat on the market a great length of time, this could be seen as signs of an improving market.
- (Neutral to Bad) The average time on market for a sold property was 95 days, 15% higher than the 2006 average.
- The Nat’l Assoc. of REALTORS predicts that 2007 will be the fourth best year ever in terms of real estate sales (2005 was the best). Locally, the January sales rate was the third best ever, missing the highest total ever by only 14 units (or only 2%).
