Return of the Seller’s Market Dear Faithful Reader, I haven’t been writing you as much. It’s not you, I promise, it’s me. Fact is 2014 marked the first year that I did not send out a quarterly newsletter. I did not send out a semi-annual newsletter. I did not send out a single newsletter. Why? Well that’s a story for another time and place, but to make a long story short let’s just say that I am still here and that is good news! Otherwise, I hope you’ll accept my apologies and we’ll press on. The good news is 2014 seems to have carried on just fine without my keeping tabs. Many are already aware that overall it was a strong year for real estate; sales volume went up, average and median sales price went up, and average days on the market went down. I’ve affixed a handy chart that shows exactly what happened, as always courtesy of Greater Tyler Association of Realtors. As the dust begins to settle, it looks as if those who purchased homes in 2014 quite possibly took advantage of the lowest interest rates that will be available in our lifetime. And throughout the year the market maintained a supply of approximately six months inventory, and so for a time we lived in balanced harmony.
But as any seasoned playground equipment aficionado knows, the teeter totter can maintain equilibrium for only so long, and the dawn of 2015 brings along with it, for the first time this decade, the return of the seller’s market. Yesssss, feel the power of the dark side young Jedi. But before we get too far ahead of ourselves let’s take a moment to talk about what a seller’s market by definition is, look at a few characteristics indicative of this kind of this kind of market, and finally what it means to those who will be buying or selling in the next 4-6 months. As always, real estate is a numbers game, so to the numbers we go!
Fundamentally, supply and demand is what dictates what kind of market it is, and housing inventory is the metric used to determine that. Housing inventory describes how long it will take the active inventory to be absorbed within the market at the current rate of sales. For example, in 2009 there were 1806 closed transactions recorded so homes were being ‘absorbed’ at a rate of 150.5 homes per month. At the end of that year there was an active inventory of 1388 homes, and so at the rate of absorption, at the end of that year, there was 9.2 months of inventory on the market. As I mentioned earlier, a six month housing inventory is generally regarded as the Mendoza line between a buyer’s and seller’s market, and so a nine month inventory is certainly a fairly strong buyer’s market. Compare that with where we are today. Same sample size (Smith County) we saw 2358 homes sell in 2014, which gives us an absorption rate of 196.5. As of this very day in history there are 741 homes for sale, which leaves us with a housing inventory of 3.7 months. WHOAH! This is a new development in that for all but the last two months of 2014 we saw inventory staying very balanced, and before that it was weighted towards the buyer’s side of things.
So what does this mean? At the risk of oversimplifying, it changes everything. For the first time in a long time sellers have the upper hand in terms of leverage, and are no longer competing against other homes for buyers; rather buyers are competing against one another for the homes in inventory. Homes hitting the market will receive immediate attention, oftentimes in the form of multiple offers, and homes that have been on and off the market in the previous years without selling, or have been on the market for multiple months without selling, are selling, much to the bewilderment of many a buyer who see no urgency on a home that’s been on the market for 150+ days. Anecdotally, in previous years on any given weekend I was out showing clients property I might occasionally run into another realtor showing the same property at the same time as myself. Last year it happened to me maybe 3-4 times. Last Saturday I showed 4 homes to some clients and every home I showed was being shown by another agent! We are also seeing homes that are selling before they even hit the market simply through word of mouth, and sellers are getting their prices without even testing the waters of the open market. New construction is no longer a risky endeavor, and more and more spec homes are and will continue to be hitting the ground on the daily. And finally, as free market capitalism dictates, this will almost certainly result in price appreciation like our market has not seen in years. Coupled with a small but discernible increase in interest rates, it is looking like 2014 may well have marked the absolute best time to buy a home in East Texas, and those who did so very likely did very well for themselves.
However, those who did not take advantage can still take heart. Though it’s a small contradiction of terms, a seller’s market is actually a better market for everyone. This is because while it’s true that there is more difficulty involved in the buying process now, and buyers are no longer able to call their shot, a seller’s market more than anything else represents a desirable market. And a desirable market, of course, is a good market to buy into. There are tangible reasons that inventory has been absorbed quickly, and many of those reasons do not subside simply because the inventory is low. Furthermore, price appreciation always lags behind the actual market due to a number of factors (market awareness, appraisals tending to be the last to effectively ‘condone’ an appreciating market, etc.), and so affordability is still really good. However, the further this type of market continues, the less desirable the market will be for buyers until it ultimately reaches its pinnacle, the market cannot be sustained any longer, and the balance will once again shift in the other direction. In my opinion, we are nowhere close to that time, but those who are considering buying in the near future may well be better off to be on the forefront of this new trend.
As for sellers, you are in the driver’s seat almost across the board (curiously Bullard area has the highest inventory in Smith County right now but is still ‘balanced’). However, as my imaginary relative who I call upon to convey colloquial wisdom once said, pigs get fed and hogs get slaughtered. Just because the market has tipped in the seller’s favor does not preclude them from the same obligations any seller in any market has; those being correct pricing, staging, and marketing. If you do those things well though, you have a very reasonable expectation of a quick sale with lots of leverage, and you may well set a record price for your neighborhood depending on recent activity. Do keep in mind that with a changing market the need for professional representation increases, as there are subtleties that exist in your particular side of town, school district, neighborhood, etc. that are not always as cut and dry as reading a CMA. This is the type of information that a seasoned and professional agent can share with you over a coffee or iced tea at your dining room table. But because I am not the stingy type (plus I have an entire year of missed updates to make up for!) here is a breakdown of some specific localities that I have put together that may give you an even better idea of where your specific market is.
|ZIP CODE||ACTIVE INVENTORY||12 MONTH ABSORBTION RATE||MONTH’S SUPPLY|
|75701 (Tyler Interior)||105||31.66||3.31|
|75703 (S Tyler)||144||49.25||2.92|
|75707 (East Tyler, Chapel Hill)||62||16.58||3.73|
|75762 (Flint, Gresham)||50||19.66||2.54|
|75702,09,04 (N/NW Tyler)||65||12.91||5.03|
So whether you like it or not, the numbers don’t lie, knowledge is power, and now you can count yourself as informed at the forefront of a changing market. Go forth with confidence, and as always if you are considering making a move, please call me today! Until next time, Nathan Foreman 903-526-9652 firstname.lastname@example.org