While inventories continued to fall and limit sales, hungry buyers drove first quarter prices up. Between years 2015 and 2016, the average sale price moved just 4% from $196k to $204k. Comparing the first quarter of 2017 to the first quarter of 2016, while the number of homes sold fell off by 14%, the average sale price was up 13% from $185k to $209k. Sold price per square foot was also up 12%. As inventory levels are unusually low and are likely to remain low through the year, buyer competition will continue to be brisk. Between February and March, active listing inventories fell 26%. During that same period, the number of new pending sales rose 28%.
- Inventory Down 26%
- YTD Units Down 14%
- Avg $/SF Up 12%
- Days on Market Down 25%
- $209k Avg Sale Price Up 13%
With a significant shortage of sharp, move-in ready listings, 36% of the new March pending sales sold in the first week. There is a significant shortage of quality homes in lower and moderate price ranges. Activity in the upper price ranges is not as brisk— 4 months of supply in the $400k-$800k range and 9 months in the >$800k price range. Many of the bigger/pricier homes that are sitting need detailing. There are still a fair number of buyers looking for, and jumping on, sharp upper end listings.
Opportunities and Strategies for Sellers and Buyers
Seller Opportunities
Supply/Demand Favors Today’s Seller: There is a significant shortage of available quality listings combined with a large number of carryover buyers who didn’t find what they were looking for last year. This has created a strong early market with little inventory.
Interest Rates Expected to Increase in 2017: Low interest rates favor both buyers and sellers. With low interest rates, buyers can afford to pay higher prices. Sellers benefit from having more buyers that can afford a given price. Those sellers who will be buying also benefit on their buy side.
Seller Strategies
Pricing—Listing/Pending Ratio: What is the ratio of active listings to pendings? What was it a month ago? It’s not uncommon to see pending comps outnumber active listings. The lower the ratio, the more liberal the pricing can be. When pricing homes in a hot market, shift more weight toward active and pending comparables. If a mortgage is likely, the house must appraise, but so long as things are reasonable, worst case, there may be some adjustment needed for the appraisal.
Condition: Today’s buyers are looking for well maintained and updated homes. They are willing to pay extra for them. There was a significant period of deferred maintenance during the recession. Many of the available homes need work. Thirty percent of Southeast Michigan listings have been on the market more than 90 days (they average 235 days on market). Most are in rough condition, overpriced or both. These homes are generally weak competition. Thirty-six percent of the homes that went pending in March sold in their first week on the market with an average sale price within one percent of asking. A seller with a well maintained and updated home will attract more interested buyers who will gladly pay a premium, so they don’t lose it, for a well tuned home.
Buyer Opportunities
Values and Interest Rates are Both Expected to Increase in 2017: Buying today allows a buyer to secure more home and pay less interest over the life of the loan. As the year progresses, both of these current buyer advantages will lessen.
Less Buyer Competition in Early Season Market: While there is a strong buyer competition with carryover buyers from last year, getting into the game early will increases a buyer’s odds of seeing and obtaining their desired home. Starting early also reduces the odds of being among next year’s carryover group who will be looking at higher prices and interest.
Buyer Strategies
Be Prepared:
• Have your earnest money and financing ready.
• See the hot listings immediately when they hit the market… the good ones will be gone tomorrow.
• Be prepared to submit an offer swiftly and decisively… buyers who “think about it” don’t have a chance to get the best listings. The longer a buyer takes, the more time competition has to slip in and take control.
Forget About the List Price: From looking at listings, most buyers get a feel for what’s available and what will likely become available. Don’t let the great ones go. If one buyer thinks this is awesome, other buyers will too. The buyer who is best prepared for this situation will get the house. Pay less attention to “list price” and more attention to “What are the odds we’ll see something better within our price range and time frame for moving?” The best homes go fast. If you want one, be prepared to make quick, clean offers that sellers can’t say “no” to.
Look at Older Listings in Higher Price Ranges: There are good available listings that weren’t packaged and priced right. Consider looking at higher priced older listings. Some of those aging sellers may be mellowing and more flexible than they were initially.