Last week I talked about the shortage of houses for sale in Pierce County being notably below the demand and how this condition makes the home buying and selling experience a little testy for many. Buyers have to make decisions quicker than they might otherwise like to, sellers face tricky waters getting their price right, and the negotiation process can have some tension that both may prefer to be without.
In the process of preparing that report I began to wonder; “Is demand really high or supply just super low?” I referenced some historical Pierce County housing data for perspective. The chart below represents 14 years of Pierce County housing activity. The bright green bars represent supply of homes; the dark green bars represent closings while the red line tracks Pending sales.
As soon as I prepared this graph the Pending line caught my attention, I call it the “Demand” line, and it is shown in red on this graph. When stepping back 14 years we can see there is certainly some fluctuation in the “Demand” line, but it looks relatively flat compared to the “Supply” line! Getting a little geeky I set out to measure the two, here’s what I learned after sifting through 14 years of data.
Next I wondered how often the demand or supply fluctuated higher or lower than 25% of the median. I wanted to know what, if anything is out of whack with our market “today”.
As you can see, in the last 14 years 63% of the time demand is within 25% of the median, and surprisingly has only been more than 25% above the median 22 out of 168 months (13%). Currently, demand for Pierce County housing as measured by 1st Quarter 2016 is in the high side of the “Normal” range. At 1,380 Pending sales it is 22% above our 14 year median. Not the same story for supply.
Our 1st Quarter supply average is 1,941 which is 61% below the median. Insert shocked face – here! – Pierce County is low on inventory! What is extraordinary about right now is the inventory has actually been in this “more than 25% below median” status for 29 of the last 36 months. Additionally, while I earlier stated that the 1st Quarter average demand is within the “norm”, if we only look at March demand it is 54% above the median making it one of the highest demand months in 14 years.
So what are we saying here?
Even though the market feels like there’s an extraordinary amount of pressure it’s been like this 80% of the last 3 years. March has us feeling market tensions in an exaggerated way due to a spike in demand along with the chronic low supply of homes we have been living with. It is also important to remember that the conditions described here are going to vary (sometimes a lot!) depending on where and what price range in Pierce County you are looking. This is one more reason why it is so important to have a Realtor at your side that can show you the #’s for your area. There are opportunities to sell into a High Demand/Low Supply sector and buy into a Normal Demand/Normal Supply sector. More on that next time!
You don't need me to tell you the market is great! The market is really back! Media is buzzing with positive housing news complete with rising prices, inventory shortages & bidding wars coupled with low interest rates and a strong economy! What's not to like? It is great, but like so many things there's two sides to the coin and the answer is, "it depends!" First, a look at the numbers for Pierce County as measured on March 31st.
Inventory – DOWN – 35%
Closings – UP – 16%
Median Price – UP – 9%
New Pending Contracts – UP – 28%
These year over year numbers are astounding. We have over 1/3 fewer homes offered for sale while at the same time we have an increase in the number of closings by nearly 1/3 creating a classic demand exceeding supply scenario. Pierce County houses are selling in an average of 59 days, the shortest length of time measured since July 2006.
In the past I've referred to sales ratios as being one of the most accurate way of describing the strength of the market. (To read a past description of Sales Ratios click here.) We know a balanced market has a sales ratio of 55%, currently the numbers give Pierce County a 95% sales ratio. We have nearly as many houses Pending as we do Active. Yikes! Another key measurement of a housing market is Months of Inventory. The target here for a normal "breathe through your nose" market is 3-5 months….Survey Says!! 1.4 !!
Most would say, "This is a great time to be a seller and a challenging time to be a buyer". There is some truth to that, but in reality, it can be a challenging time to be on either side of the table. Sellers naturally want to price their home accordingly to take advantage of the favorable market conditions and not leave any money on the table but proper pricing strategies right now can be elusive. Meantime, no buyer wants to "get in a bidding war" and the result is a tension from both sides that can get interesting. Consider this scenario that recently played out;
Our new listing just hit market – Within days we have two offers! No, wait three! Buyers are notified, "we have multiple offers!" First one raises offer – second stays put – third one goes dark! Aghh! Then, just before time to review and sign off, first one lowers to original amount…..oooookkkkayy! So second one goes away to chase another house. Wait!, first one has gone dark now too! What the..?! day goes by….first one is out! Good grief! Word is #2 didn't get the other house they were chasing….so go get #2, right?! Ohhhhh we can't! #2 has now decided house is too close to a relative she doesn't want to be so close to!
Day 15 – still on the market.
With the added tension of this fast paced market sometimes decisions have to be made quicker than we would like and the resulting flip flopping can be hard on everyone!
Despite the obvious inventory shortages and low market times it is not hard to find homes that have been on the market for 100 days or more. That shows us the market is not all forgiving and throwing any high price on a property will fail. For sellers it is a delicate balance between pushing the envelope and being realistic. For buyers, the last house is not the last house. Find good counsel in a trusted Realtor, have a pre-approved loan in your pocket, and the right house will come to you at the right time.
Markets seek balance and the current shortage of good homes will not last forever, it never does. Yes, prices are going up, and that erodes buying power. In the process new neighborhoods evolve as qualified buyers gentrify more affordable areas. The dream of having the right home to call your own is still obtainable.
It's that time again to check in on the Pierce County Housing Market. This month we have another neutral month based on the year over year stats I always lead off with, but I also found a few goblins we may want to keep an eye on. Here are the headline numbers as measured on September 30:
Inventory – UP 6.5%
Closings – UP 9.1%
Median Price – UP 1.4%
New Pending Contracts – 31.7%
These are Year Over Year Numbers and they look pretty good. Inventory is UP, we like that, the market needs more houses to sell as we still have less than 4 months supply based on closed sales. Median Price is UP only slightly but that's not a surprise, we talked last month about price increases slowing. Pending contracts are UP so much that it is a great indication we are in store for a strong sales flow during the 4th quarter as we wrap up 2014! While I prefer the pumpkin is "half full" viewpoint, I have to say the market hasn't "felt" like these numbers. When talking with other brokers recently, I've noticed some chatter about a slower market; so I dug a little deeper.
Month Over Month transaction volumes are much different with Pierce County DOWN 13.4%. Turns out this August vs September drop in closed sales is normal, at least compared to 2013 when the same thing happened. However in arriving at this conclusion I viewed the volumes by price range and saw a couple of items you may find interesting. In the chart above you can see the very important $250,000 – $500,000 price range things really took a break with volume dropping 20%. These are the homes that buyers are "moving up to" and it is just this year we have been able to say the recovery took hold in this sector. This segment of the market represents over 35% of our Pierce County transaction volume. I don't know if it is widely understood that 95.7% of the Pierce County Market happens in this price sector….and below!
This shows that only 4.4% of all Pierce County transactions were over $500,000. In case you were wondering, listing inventory over $500,000 disproportionately makes up 13.3% of the total number of homes for sale. Pierce County Housing Market participants need to know, the "Work-Horse" price sector is under $250,000 with 41% of the inventory creating over 60% of the sales!
We have a healthy volume of Pending Sales so if history repeats itself the coming months should provide a nice increase as we wrap up 2014.
September's numbers are a fitting reminder that there's a limit to how robust our recovery can be characterized.
Month by month we are achieving normalization and as I've always said; "markets don't recover in a straight line" so there may be a bump in the road from time to time. Those that approach this market with realistic expectations based on detailed market analysis will find success.
Give me a call or shoot me an email, it is always good to hear from you!