November 4, 208
Buyers’ expectations in the ideal home have evolved, so sellers need to price accordingly.
Carefully Pricing: Sellers must price according to their location, condition, upgrades, updates, décor, and overall appeal.
Prior to this year, there was not a lot of thought that went into pricing a home. Since 2012, sellers stretched their asking prices and home values soared. It seemed that every time a home sold, it was a new record for the neighborhood. New sellers would come on the market, take a look at the comparable sales, add a little bit more, and then they sifted through multiple offers. They often settled for purchase prices above their asking prices. Sellers were in control as buyers tripped over each other to secure their piece of the “American Dream.”
With higher prices and a dramatic rise in interest rates this year, housing has slowed considerably. Interest rates have risen from 3.9% in November 2017 to nearly 5% today. Combine that with annual appreciation around 5% and monthly mortgage payments have increased by 19%. As a result, demand is down 23% compared to last year and the active listing inventory is 48% higher. Due to the sharp increase in supply and a striking drop in demand, the Expected Market Time for Orange County has increased to levels not seen since 2011.
The Expected Market Time has grown from 54 days in April to 117 days today, a Balanced Market (between 90 to 120 days). It is knocking on the door of a Buyer’s Market (over 120-days) for the first time since January 2011.
Sellers no longer get away with stretching the asking price. In fact, they must be extremely careful in pricing or they will not find success.
Buyers today are much different than buyers of past markets. Today, buyers want a home that is turnkey, ready to go. They want it to look like a model home. What happened? Quite simply, it was Chip and Joanna Gaines.
HGTV’s hit show, Fixer Upper, about home design and renovation, starred Chip and Joanna Gaines and aired for five years, from 2013 to its final season this year. This show, along with the overabundance of real estate related reality shows, changed buyers’ expectations and approach to real estate. This is where the expectations and desire for the perfect, turnkey home originated from.
Today’s buyer wants a home to look like a model. When it falls short, buyers subtract from value. If a home needs carpet, the walls are scuffed and dirty, the kitchen is outdated, the yard needs work, the patio is cracked, the light fixtures are old, the bathrooms are dated, and there is plenty of deferred maintenance, buyers will subtract heavily from value. Many buyers will just skip these homes altogether and wait for a home to come along that is already done and ready for immediate occupancy.
To find success, sellers must price their homes carefully considering the comparable sales and factoring in a home’s condition and overall appeal. The closer a home looks to a model, the faster it will sell.
Active Inventory: The active listing inventory dropped by 1% in the past two-weeks.
Last year at this time, there were 4,878 homes on the market, 2,373 fewer. That means that there are 48% more homes available today. The year over year difference continues to grow every week. The trend of more homes on the market year over year is here to stay.
Demand: Demand dropped 6% in the past two-weeks.
Last year at this time, demand was at 2,409 pending sales, 30% more than today, or 552 additional pending sales.
Luxury End: The luxury housing market improved slightly.