There was a surprising jump in new purchase contracts written across all price categories over last November, providing some additional optimism going into the winter months. The jump may have been a combination of continued good economic news, the release of remaining pent- up demand, and mild weather. Overall, we are still in a Seller’s market, but we do expect For Sale inventories to rise next year, causing most markets to achieve more balance between supply and demand.
What is driving buyer demand?
A) Mortgage credit continues to ease, particularly for first time home buyers.
B) Interest rates remain extremely low.
C) Household incomes are rising slowly, but still rising.
D) Employment is rising as well.
E) For Sale inventories are rising, drawing out buyers with more choices.
For sellers, prices are still rising, although at a slower pace, creating equity to help release those move-up sellers who have been held hostage to their past declines in equity.
We have been seeing the upper-end markets, generally over $400,000, slowing as the growth in For Sale inventories outpaces the growth in sales. However, how slow depends on how long each home has been on the market. For homes on the market under 30 days, there appears to be strong buyer interest, similar to that in the more active, lower price ranges, but as the time on the market grows, the buyer interest narrows considerably.
The following chart illustrates that trend by showing the average number of active listings for every buyer (sale) in November.
For homes that sold in 10 days or less (about 30% of all sales), the number of listings per buyer is about equal, regardless of price range. As the time on market increases, there is a dramatic jump in the number of listings for each sale, specifically in the over $500,000 market, showing why some upper-end buyers are seeing an active market, equal to other price points, and others are feeling like activity is shutting down. In all price ranges, the optimal buyer interest will occur in the first 30 days, when 50% of all sales take place. After 30 days, buyer interest drops considerably unless there is a change in either price or property condition.
The majority of transactions occur in the $250,000-and-under market, where buyer activity is the strongest as move-up activity is created, which means that while we are seeing some signs of a normalizing market, it is still very active, pushing demand upward in the higher-priced markets, particularly going into the winter months.