As we all watch the market daily and keep hearing about outrageous offers and heated competition, the reality is that most news is outdated by the time you read it. This is a snapshot of what happened this year so far vs. trends in the past as well as some benchmarks of sales production or lack thereof, pricing, and the cost of money. While the beginning of the year was certainly heated there are moments when the market drops sharply and quickly rebounds. The buyers and investors that are active in the market usually can find the brief dip because they are writing offers and sticking to their parameters of their loan and max housing cost. These buyers usually benefit because they are disciplined and also at times difficult to work with because they absolutely WILL NOT over spend because of logic and fear. And that’s not a bad thing. They are patient and have no issues writing what some would call a ridiculous or non competitive offer, even if is for 700,000 or “only” 30k-50k above the asking price. I certainly like working with these buyers because its challenging and when we are successful, we are all giddy because we can measure through other sales how well we did our how much we underpaid based on previous sales or sales that close while we are in escrow.
There is no magic formula. It just takes patience. And the only rhyme or reason that we can figure out why it happened is based on trends of the previous quarters and usually effected by interest rates and seasonal trends that indirectly removes people from the market like Income Taxes due date, Spring Break, Mother’s Day, Etc. It sounds funny but after 18 years, it becomes obvious after the fact. Think about it, how many buyers are looking at homes while they are on spring break vacation with their kids? House was on the market offers due the following Tuesday and a bunch of competition was out of town that didn’t see it. They don’t write and the handful that were here do and are able get an offer accepted for less than 5% above the asking. That’s a bingo! Same goes for mother’s day or people freaking out about taxes or having to write a check to the IRS which has the potential affecting their mood to look at a home with an average cost of 850,000.
This is why summer is typically known as the selling season. Because everyone has more time and are focused on getting a home before the start of the new year. These are when home prices spike because of the pressure that buyers and even the agents put on them. But here’s the kicker. There will be a dip in the summer too. I’ve seen it around July 4th and also the beginning of August when people take their family summer vacation. But there is always a spike in late August because when they return they are in freak out mode to buy a house in a school district of their choice or just want to achieve their goal.
So if you look at the stats below you can figure that March is a time when people are stuck in tax mode. New home stats are a good source to measure the market but what they don’t account for is that typically there are less homes being built in the winter and not completed until after spring when they can actively frame, drywall, paint, roof, etc. And if you back out 4 months of standing inventory you are looking at the fall seasonal trend with the market always recedes because the focus is on Thanksgiving, Christmas, and the travel that is associated with it as well as the focus being on the holidays not looking for a home. Now the homes that are absorbed in Q1 having been on the market for 4 months is typical for a national average but in the bay area very often there is no standing inventory. At Alameda Landing and Marina Shore you only have about 1 or 3 units that are available to move in. This could be because of the price (they adjusted upward because of the lack of inventory) or the finishes are either not what someone is looking for or way over the top, hence the higher price. Another issue that new home sales have compared towards the fast moving resale market (about 2 weeks on the market before sold) is that people have a hard time seeing a neighborhood under construction. While resale you can see you neighbors, a park, streets, a sense of community, etc. In a new development it’s hard to duplicate a tree lined street with kids toys and bikes in the front yard.
So what does this all mean? It means we will have more of the same and when another report comes out in September you will be able to see the rise in the market, most likely a slight rise in interest rates, and a sharp rise in new home sales and rapid resales based on the sales and financial trends of the past.
- Sales of new homes dropped 1.5% in March to a seasonally adjusted annual rate of 511,000 units. The first-quarter sales pace of 517,000 units matches the sales pace set in last year’s first quarter. 1
- The median sales price of new homes sold in March was $288,000, a 1.8% decline from the $293,400 median price of March 2015.1
- Half of the new homes sold in March were on the market for at least 4.1 months after construction was completed. The median length of time on the market in March 2015 was 3.8 months. During the recent housing downturn, the median length of time on the market spiked to 13.3 months in 2010.1
- Over the last four quarters, the homeownership rate averaged 63.6%, the lowest four-quarter average since at least 1980. A year ago, the rate stood at 64.2%.2
- The economy expanded at a 0.5% seasonally adjusted annual rate during the first quarter of 2016. That’s the third consecutive quarter of deceleration since GDP expanded 3.9% in the second quarter of 2015. The economy has grown at a 2.1% average annual growth rate since the current recovery began in mid-2009, while the previous post-World War II recoveries averaged 3.7% annual growth.3
- Productivity fell for the second consecutive quarter in the first three months of 2016, generating a 0.6% gain over the past year. Productivity growth has been subpar for the last several years, compared to the 2.4% average annual growth rate set from 1991-2010. Productivity measures the output produced per hour of work and is a fundamental driver of changes in economic standards of living.4
- Slower productivity growth boosted growth in unit labor costs, which measures the cost of labor that’s required to produce a given amount of output. Unit labor costs are up 2.3% over the past year, almost double the 1.2% average annual gain from 1991-2010.4
- The average rate on 30-year fixed-rate mortgages in Freddie Mac’s survey was 3.61% during the week ending May 5, a decrease of 5 basis points from the previous week. That matches the April average and is below the first-quarter average of 3.74%. All rates quoted have fees and points averaging 0.5% to 0.6% of the loan amount.5
1. “New Residential Sales in March 2016,” Bureau of the Census, April 25, 2016. Data on median months on market are not seasonally adjusted and subsequently only March data are presented.www.census.gov/construction/nrs/pdf/newressales.pdf
2. “Residential Vacancies and Homeownership in the First Quarter 2016,” Census Bureau, April 28, 2016. Table 4SA. Data are seasonally adjusted and begin in 1980. www.census.gov/housing/hvs/files/currenthvspress.pdf
3. “National Income and Product Accounts – GDP First Quarter 2016 (Advance Estimate), Bureau of Economic Analysis, Department of Commerce, April 28, 2016. www.bea.gov/newsreleases/national/gdp/2016/gdp1q16_adv.htm
4. “Productivity and Costs, First Quarter 2016 (Preliminary),” Bureau of Labor Statistics, Department of Labor, May 4, 2016.
5. Freddie Mac Primary Mortgage Market Survey, May 5, 2016.
The Federal Reserve Bank of St Louis Economic Data system (FRED) was used to collect historical data on nonfarm payroll employment, the unemployment rate, and the CPI.