Some Realtors tell me it’s sloooooow. Then they say it’s mostly in the upper price range that things have slowed the most. I have numbers that say otherwise. The feeling of it being slow is part real and part perception. I’ll explain that part last. But first, let me tell you a story of days on market.
In everything I write about below I will be referring to only Longmont Single Family detached homes. It’s the biggest segment of our market and the pulse of what’s happening in our market. As we’ve talked before, there has been a dramatic increase in inventory. We talked how this increase should push days on market upward. But last month I dispelled that myth and proved how time of year is a much greater influence on days on market. Currently we stand at an 18.3% increase in inventory and, through the end of the third quarter of 2019, we have added just 4 additional days (or +8.3%) on market over 2018 (48.09 to 52.08). The margin between the two is a full 10%.
If it isn’t the days on market, what makes it feel so slow? Well, the 112 closed sales in September of 2019 represent the highest monthly closing total for September since we had 114 in 2015 and is the second highest September sales total in the past 12 years. Look at the graph, we are 33% higher than each of the last two Septembers…this shouldn’t feel slow at all. Since I mainly talk to local agents (my favorite agents of all-time), maybe it’s this fact: the 112 closings in September represent 224 agent sides that got paid… well, 107 of those sides went to out of town agents. Quick math says that’s about a 48% capture rate for local agents, so at most, 117 of the 500 Realtors in town got a check from selling a house last month. It would make sense that if only 23% of the Realtors got paid then 77% of them would think it’s slow.
What about those higher end homes? Some Realtors have told me their leading indicator of a slowdown is when buyers stop purchasing high end homes. Oh, and the same agents have said that group is super slow right now. Ummm, are you ready? No, they aren’t. This September, all sales of homes over $600,000 sold in 17.5% FEWER days than they did at their lowest point in 2017. Closings between $400,000 and $600,000 closed in about 13% MORE days than they did in 2017. The truth of the matter is it’s the lower end that’s dragging days on market upward. Yes, the lower end. Closings below $400,000 averaged 22.5% MORE days on market than they did in 2017. Why? I have two theories.
Theory number one is simple: value. Have you seen what you can buy for under $400,000? It’s the new $200,000 from 10 years ago, but it’s twice as expensive. The price versus value proposition just isn’t there for buyers in this price point. I think some people would rather continue paying rent and live in a nice apartment than pay nearly $2,000/month for something that needs a lot of work. There isn’t even a steal out there as evidenced by the fact that there hasn’t been a single sale for under $200,000 this year.
Theory number two. And this was revealed at the class two weeks ago when market maker Freddie Mac was in town. I have their stats to back this up – we as an industry and society have failed to create buyers out of a large percentage of the Millennial generation. Their credit scores and financial literacy are below previous generations. This is one reason why they are still living in parent’s basements despite 74% of them desiring to own a home. These are the typical entry level housing buyers and they are not participating in the new entry-level market that’s going to cost them between $300,000 and $400,000. Without first-time homebuyers to purchase homes in the first-time homebuyer price range, houses will sit longer. By removing a good percentage of the demand of an entire generation, houses will sit longer. The good news is that there will be some upcoming classes to address this issue. They will be perfect for both Realtors and buyers.
Lastly, the other part. October officially is the start of the slow season that will extend until about the middle of March. Look at the graph again and you can see there is some real volatility in the results that October through March can bring. There isn’t much volatility in the yellow bars that represent the two months each year with the highest sales. Those are always somewhere between June and August. The lowest month is always January. And as we see as a trend all year, the average prices are either up slightly for the month or down slightly. I can wait to show you what a flattening of prices looks like in the year-end graph.
Happy Fall Y’all