What’s Happening in The Market??
The past few weeks all I have been hearing from agents is “the market has shifted” or “something funky is going on in the market in xxx”. I’ve started to notice more emails from agents advertising listings that have had price drops to entice new buyers or increases in the commission being offers to the buyer’s agent in hopes that will entice agents to push their clients toward a certain property. Agents that have listings which aren’t selling seem to be panicking. In the back of my mind, I have consistently been thinking, “What did you expect? This has been happening for the past few years.”
Sellers (and many agents) have traditionally said summer is the best time to sell a house — it’s when the market is hot. Without looking at data, I feel relatively comfortable saying this used to be true. However, I have noticed a shift. Not a shift in the market this year but a shift in the trends of when our market is hot and when it is not. I have had sellers talk to me about selling in the past month, and I told them the ship has sold for the first part of the year and there’s a summer lull as of late and to wait until the fall. However, hearing all of this, I wanted to investigate statistically what has been happening in the market the past few years to see if my thoughts were on point.
I compiled data for sales from 2015 to the present. I wanted to focus on the $/Sq Ft ratio, but it becomes skewed when using a data set containing a big variance in the square footage of the houses (larger houses sell at a much lower $/sq ft due to the value of the land here). So, I focused solely on a subset of single family houses from 1200-1800 sq ft to keep some sort of continuity. I compiled data on the county level and city level. Let’s take a look at Santa Clara County and San Mateo County, as well as the cities of San Jose and Sunnyvale.
While looking at data, I like to look at the overall trends and not focus on small outlying data points. I do so because looking at only houses from 1200-1800 square feet is actually a pretty small set of data. Inventory in the bay area has been at a historic low. In fact, since last August, we have been averaging only about 200 new single family homes (that are 1200-1800 sq ft) coming on the market each month (compared to about 500/month in 2013 and 600/month in 2012). So given, I find it best to look at overall trends.
As seen from the graphs, it’s pretty easy to look and see that a large portion of the appreciation each year has been in the spring. In all areas, it’s been pretty consistently increasing from January through April or May. This is a time that I tend to call the market a bit crazy. Properties are getting dozens of offers or more, values are shooting up weekly, and it is just difficult to buy a house (but super easy to sell.) Everybody is clamoring to buy. We then seem to what I call a summer lull. While it is not completely identical the past few years, it’s pretty easy to see there’s a dip that happens before summer kicks off. We then tend to see a bump back up in the fall.
In my opinion, there are a variety of reasons that this happens. Many buyers jump into the market at the beginning of the year. They’ve been saving money and decide ‘We are going to buy a house next year.’ The year begins and they jump in the market. Some of them get properties and some get outbid. They see the market being ultra-competitive, and they see prices going up literally week by week. It’s hard to digest paying 50k more than one that sold the month prior, or 150K higher than one that sold last fall. I see many buyers start to walk away by the end of the spring season. Perhaps it’s because they are discouraged and disheartened. Perhaps they are tired of spending weekend after weekend looking at houses to no avail, and once the weather gets nice they’d rather enjoy their days off. Perhaps they think they have no chance. This is coupled with the age old thought among sellers that summer is the best time to sell. So, just as buyers are walking away, more listings are hitting the market. Inventory pretty much doubles but there are not as many buyers seriously looking any longer. This results in less competition and a drop in the market. Houses start sitting on the market. Prices start to drop. This all happens over the course of a couple months. Buyers then start to see there is a shift. Agents are calling their clients telling them the market is coming down. Agents start telling their sellers to take lower offers because there’s been a shift and the market is coming down. Everybody (I mean everybody!) is scared the market might have reached it’s peak. While not mass chaos, it is chaos. There’s misinformation being given out. Realtors are discussing it weekly at office meetings and how to handle it. Eventually, buyers catch on and realize it’s not as dismal a situation for them anymore and they decide maybe to jump back in. There goes the fall bump and we get back to a competitive market. Sellers in the meantime think they missed the best season to sell – the summer. So, not as much inventory is coming on the market. We essentially became a competitive spring season 2.0.
So, what does this all mean? It just means 2018 is pretty much in line with the past few years. Buyers are still out there in droves; so, we haven’t reached our new peak yet. Buyers can still afford what they are buying (and with much ease for many thanks to the strong tech industry the past few years.) However, we are just going through the same summer lull we have been for the past few years.
Buyers seemed to have caught on as of late about seasonal trends, particularly the jump in prices at the beginning of the year. So, in 2017 we saw a crazy end of the year with prices starting to jump even earlier. The same will likely happen again this year. What does that mean for consumers? For buyers, buy buy buy now while the market is in a lull and all your competition is soaking up the sun on the weekends at the beach. For sellers, don’t believe that summer is the best time to sell and realize that holding off until the fall may be your best choice (and certainly don’t be afraid to list toward the end of the year anymore!)