We are a little over halfway through this year!
It’s a little more difficult to describe the first two quarters of this year compared to the last. Last year was an easy answer: EXTREMELY competitive on basically every property.
I would describe the first quarter of this year as apprehensive; there were many buyers in the market looking, but not all willing to write offers. In the 2nd quarter I saw that change, with a big uptick in offers written and overall competition.
From Q1 to Q2 of this year, prices in Santa Clara County rose 13.7%. And the 2nd Quarter was only 3.5% less than Q2 of last year, when prices were at an all-time high.
How can prices be that little changed, after the huge correction we saw from May to August of last year? The primary reason is one of our Leading Indicators (market trends that point to where prices might be headed): INVENTORY.
The number of properties for sale has remained extremely low. The first two months of this year we had more active listings on the market than the year before. But after that, it flipped and we still have not seen much of an increase in inventory.
Why? I've heard this from clients, read this in news articles and even had the thought myself; Why would I sell and lose my 3% or less 30-year fixed mortgage, to buy likely a more expensive home at more than 2X the interest rate?
Interest rates are a new addition to the reasons that many home owners have chosen not to sell. It is also another leading indicator for the housing market.
For years I've seen many of the sales be predominantly people retiring and moving out of the area. That remains to be the case. People don’t mind selling if it gives them the cash to make their out-of-area or out-of-state purchase, without needing to worry about a loan.
For the move-up/downsize buyers who also need to sell to make that happen, their hesitation in years past has been the low inventory. “I know my home will sell quickly, but I don’t feel I’ll be able to find a replacement property easily, and if I do there will be a lot of competition.”
Those two major reasons are the biggest contributing factors to the low number of properties on the market now. And it impacts prices. For Santa Clara County, prices were 3.1% higher this June compared to June of 2022.
That being said, the difference I see between the first half of last year and this year is that last year, it didn’t much matter what or where the property was. There was going to be competition.
This year I have seen some properties receive 40+ offers. Then I’ve seen others sit for 2-3 months. Inventory is low, but buyers are discerning. If it is a desirable property, either because of condition or location (or both), there is going to be competition.
If there are unaddressed issues with the home, if it borders a busy street or the area isn’t ideal, or if it is priced too high, likely it will sit on the market for a while.
This period of sitting on the market is another leading indicator; the Days on Market (DOM) before an offer is accepted. The longer a home sits, the chances of them getting the asking price begins to diminish. I see exceptions to this, but for the most part, if a home sits on the market, the first thing to consider is a price reduction.
The DOM stat for Q2 of this year compared to Q2 of 2022 is an interesting one, because the difference in the average and median is astounding (Average being the days on market for each property added up and divided by the number of homes. The median being the one house that falls in the middle of all those other homes in terms of days on market).
This year compared to last, the average Days on Market has increased 64%, but the median Days on Market has not changed at all...
Why such a big difference when we are talking about numbers that measure fairly similar things?
I think that it is because the homes that may have sat on the market for a while last year, are sitting even longer this year. And the greater number of homes sitting on the market longer is throwing off that average, while the homes that fall in the middle when it comes to price are selling just as quickly as they did last year.
The next question is, why do properties sit on the market? Over 17 years, the reasons have become more apparent to me: Pricing, Presentation and Marketing. The importance of preparing your home for sale and pricing it appropriately are so important.
What does that mean? I’m in the process of doing that now with an upcoming listing in Cambrian. We are de-cluttering. We are painting. We are cleaning up the yard. We plan to stage the home. We plan to price appropriately and have all the marketing and advertising ready.
All of this makes a difference, even in extremely competitive housing markets, but it is all the more essential in slower markets and can be the difference between a sale occurring within a week, or having to wait 3-8 weeks.
So how would I describe this market? It is most certainly a Seller’s Market. Not to the extent that it was in the first few months of 2022, but if you are a seller, you are still in the driver’s seat.
For buyers, the market depends on what you are looking for. Most people have a specific area they want to be for convenience or schools, or specific needs with the condition of the home, like being remodeled. Those are also the properties that appeal to the majority of buyers, so expect to see at least a couple other offers competing with you.
If you have the flexibility to go after homes that have been sitting on the market longer, either because they are priced too high or may have a feature that has deterred other buyers, there are some good opportunities to buy at a lower price and avoid competition.
But keep in mind that if it is a physical characteristic of the property that has made other buyers hesitate, you may have the same challenge when the time comes to sell. Just something to factor in when you’re thinking long-term.
I think interest rates will continue to remain in the 6.5-7% range they are currently in for a while, even with the positive news coming out about reduced inflation.
The average mortgage interest rate over the last 50 years is nearly 8%, so these new rates aren’t shocking. But it is shocking when that increase basically happened in 3-4 months last year.
There are some lenders changing the types of loans they make to be more conservative, and also increasing their standards as far as the percentage of down payment and credit scores they require.
I like seeing the conservative approach, but it is an important sign and something to be aware of. It could further impact the price that home buyers can afford, which would reduce prices. But I think inventory continues to be the biggest factor for housing prices.