This local real estate market is pretty hot, but it is not as hot as many agents and sellers think. The tension is based almost entirely on a lack of supply rather than an abundance of buyers. A seller's market for resale homes, based on the latter is much stronger than one based on short supply. Real estate, like most markets, is largely driven by the supply and demand principles of basic economics. It is a dynamic and sophisticated market with many subtle variables and nuances, but it is at its core still a buyer and seller driven model. Let me give you an example. Let's say a local market with a total inventory of potential resale homes at 100,000 units and a current listed inventory of 1000 homes. This represents a tight active inventory of 1%. Looking purely at the supply side, one could come to the conclusion that it is a strong seller's market. But demand could also be low. If there are only 200 active buyers in that market, then it really isn't a seller's market. But say there are 2000 active buyers vying for that tight inventory of 1000 listings. How quickly could that seller's market shift to a buyer's market? A springtime rush of listings swelling the active inventory to 5% could quickly shift the dynamics in favor of buyers. Now there are many variables to consider and these are basic rough examples, but I believe we are sitting on an average buyer demand and a very tight supply of sellers.
This is my case in point. Right now, our high pressure seller's market locally is completely supply side based. There is simply very little active inventory. There really is about an average number of buyers in the market. If our inventory comes back to an average we will watch this seller's market swing neutral. Prices locally have gotten high enough that half the buyers from just two years ago are priced out. Wages are not growing fast enough to bring them back in the short term.
What this means for the "cocky" sellers is that they still need to follow best practice. The home should be made as available as possible, with as few restrictions as possible. Seller's seem to be perched on this pile of attitude and yet they are still in a far more precarious position than they realize. The more buyers exposed to the property the better chance for a top-dollar offer. That one guy that thinks Mr. Jones' house is the holy grail, may never see it because Mr. Jones has all kinds of stupid restrictions on showing the property. So the one guy willing to pay that extra 10% may never be exposed to the property and Mr. Jones could leave $10-20 large on the table, if you'll pardon the mobster money parlance. Real estate agents that don't explain this to their clients are doing them a gross disservice.
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| RMLS Data |
Back in 2005-07 the local market was driven by an excess of buyers. There were easily 60% more listings than today but the number of active buyers was much higher. It was still a strong seller's market. Our market now is more likely to see an increase in inventory than an increase in buyers. Why? Because wages are the stopping point for buyers. With the county median above $300k, the typical house is out of reach for the majority of households. This is keeping the supply of fresh buyers relatively low. The seller's are enjoying this favorable market because inventory is still tight and that is more likely to soften than a sudden swelling of buyers into the market. Case in point is the RMLS data showing year over year increases in new listings since 2012. There has been a steady increase. Buyers are starting to get price pinched and seller's are slowly coming into the market, neutrality is closer than most agents realize.
This is a great time to sell a house, but the party may be winding down for sellers and buyer's could soon be back in control as people start bringing property to market. All those folks I sold houses to in 2010-2012 are sitting on a pile of equity and soon may begin listing their homes. I am not forecasting any precipitous drop in market pricing, but a slow down in appreciation and a shift from a seller's advantage to a neutral market is more likely than not.
To paraphrase Han Solo, "Great seller's! Don't get cocky!"
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