June Market Update
Hey all,
If you have been watching the news and the market, as we are, you will see things are beginning to shift away from the purely sellers market that has dominated the greater Seattle region for the last 7+ years. We are keepings an eye on these stats and are going to make a habit of sharing monthly market updates to track these numbers closely.
What stats are we paying attention to? We have a set of five different stats that are the best indicators of large market trends and can help us understand where the market is and where it might be headed.
Months of Inventory
Months of inventory is considered the standard for determining if you are in a buyers or sellers market. The stat works like this. If all homes were to stop being listed tomorrow, how long would it take for all the homes on the market to be purchased? It is a function of buyer demand related to current inventory.
As the graphic above mentions. 4-6 Months of inventory is considered balance, neither a buyers nor a sellers market. Anything below 4 months is considered a sellers market, and anything above 6 months is typically considered a buyers market.
Right now were are still in a sellers market at 1.48 months of inventory, but it is a large increase over June of last year which was only .58 Months (WILDLY LOW)!
For context, here is a graph of the history of the months of inventory over the last 10 years. As you can see, we have been in a sellers market for almost 10 years straight now.
Days On Market
New Construction Sales - Average Days on Market in the City of Seattle
Days on market, is what is sound like: When a home hits the market how long, on average, does it take for that home to accept an offer. This graph that we are looking at is new construction only. There is a very normal cycle annually, that homes listed in the winter tend to stay on the market for longer, because less buyers are looking during those times.
Overall we see a downward trend, leading to the current headlines about bidding wars and many buyers struggle to find a home.
The June stats do not show this number jumping up dramatically, but keeping an eye on this is going to be key moving forward.
Average Sales Prices
New construction sales price for all of the NWMLS (Not just city of Seattle)
Prices year over year for new construction are up 11.7%, that is a very drastic increase. Everyone knows this kind of growth is not sustainable and there are reason to believe it is reaching a peak based on what we are seeing with price reductions in the graphs below.
It is also worth noting that many of the June sales prices are going to be homes that went pending in May when interest rates were still slightly lower than they are now.
Average Sales Price for all New Construction in the City of Seattle
Interest Rates
Much of the latest price run up is due to super low rates. Above is the last 5 years of average interest rates. They bottomed out in Spring of this year and are now about double of where they were just 6 months ago, that leads to major decreases in buying power for buyers which leads to our last indicator, price reductions.
Price Reductions
One of the quickest statistics to change is price reductions. These will happen immediately as sellers do not find buyers willing to pay what they are asking for their homes. In the very short term we are seeing a lot of reductions which gives us the indication that things are indeed changing.
As interest rates are rising we are seeing buyer not being able to afford the same units that sold for a premium just a few months earlier. Sellers, however have a lag in expectation, they will look at their neighbors house that received 10 offers and sold 25% over asking price in April or March and want to price their home at the same sales price as their home. After not getting offers they will reduce price and we will begin to see the correction in the market. Here is the snapshot from the MLS last week, half as many price reductions and there were new listings!
Summary
We are not seeing large movement in the June stats just yet. Months of Supply are still low, as are days on market. Closed sales prices are also not showing drastic changes either, but all of this will likely start to show its true colors in the coming months, as interest rates are rising and price reductions grow as well.
What does this mean for new construction sales? I think it means that we should certainly not count on continued 10% year over year growth. If your profit margin was based on this speculation of price increase, I would be worried, but if the proforma is based in today’s sales prices (which is how we model all of our proformas) than I would not be raising any alarms. We should also expect to see buyers having some more negotiation power in the coming months, as opposed to them begging for you to accept their offer.
We are making considerations to open up our units to presale opportunities again, where we had previously put the practice on hold to promote competition at the time of listing units.
