no hassle listing blog

Recently national housing statistics have made headlines regarding the diminishing demand of homebuyers.  This is understandably unsettling to homeowners in the valley who recall all too well the housing crises where supply and demand went topsy turvey.  As interesting as it may be to listen to national housing statistics, they are generally antidotal.  Even in the midst of the housing crisis of the “Great Recession” there were markets that saw little downturn – proving that real estate markets are local. Is the valley in the midst of dwindling demand?  The short answer – a slight abating of demand is possibly underway.  Is it so great to affect pricing or cause any significant impact to our market?  No.  This is due to the largely chronic lack of supply.  Perhaps some numbers can better put this in perspective.

Demand The first thing to understand is the seasonality component of real estate – i.e. different times of the year perform differently.  Headlines can rather easily claim “buyer demand is down” simply by comparing April’s numbers to September’s numbers. Buyer activity reaches its peak in April and then increasingly slows through the rest of the year.  To have meaningful comparisons year over year numbers should be examined.  One key measurement of buyer demand is contracts.  We can then see for instance, that contracts have dropped 26% from the April peak this year, compared to a 20% drop in 2017 over the same time period.  That can lead us to the conclusion that a slight weakening in demand may be underway.  Slight being the keynote concept.

Supply Like demand, supply also follows a seasonal pattern.  Listings typically hit their low point in August and then rise until Thanksgiving (with a large exodus of cancelling listings at the end of the year).  In 2018 we hit the low point a bit early – July – and supply has been drifting upwards since.  But before we hit the alarm button, the overall numbers put this in perspective.  Here is an interesting analysis made in June of this year by the Cromford Report :

The total number of active listings … is 19,736 today for all areas & types across the ARMLS database. This is just slightly above June 15, 2011 when we saw 19,696. We have to go all the way back to October 2005 to find another 15th date (19,715) with lower active listings.

Active listing counts have been on a declining trend since April 2014 when we hit a short term peak of 30, 506. We would consider somewhere between 30,000 and 35,000 to be sufficient for a balanced market. The all-time record high for a 15th date is 58,195 in November 2007.

Between 30,000-35,000 active listings would be considered a balanced market.  As of this writing the active listing count is at 19,860 – not even close to a balanced market (and remember, that even balanced markets do not cause price drops – they just stop or slow appreciation).

Of course, different areas and types of properties are reacting differently on supply levels.  As Cromford comments:

There are some areas that have seen a dramatic rise, often from abnormally low levels. Florence is probably the best example. At the end of June we had just 100 active listings without a contract, but since then the count has shot up 38%. The trend does not affect mobile homes, but single-family listings have jumped from 71 to 111, an increase of 56% in just 8 weeks. A similar but smaller event has occurred in Casa Grande and Coolidge. The only areas outside of Pinal County with a jump like this (albeit more moderate) are Litchfield Park and Surprise.

The Answer -So what is the take away of all this?  If demand is showing early signs of lessening, and some areas are seeing increasing supply – when is the tipping point?  The answer is contained in the supply numbers.  Again, to quote  Cromford :

 Fluctuations in demand are unlikely to have much impact on the market until we see an increasing trend in listing counts. This was the first sign of a slowdown in April 2005 and will be the first sign of a slowdown if and when we get one in the future. It came suddenly and unexpectedly in April 2005 and it may do the same at any time. However, nobody paid any attention in 2005 and I am assuming we are all older and wiser now. Any unusual activity in the listing counts will show up in the daily Tableau charts which we create and study each and every day.

We too watch the listing counts.  When we see shifts, you will hear it from us.  Until then, do not believe the headlines.  As always, we are here to help you with any questions or concerns specific to your home or neighborhood.

Russell & Wendy Shaw

(Mostly Wendy)

While some areas of the nation are at long last reporting a slowing of sales, the valley’s market is continuing to power forward both in rising sales and appreciation.  Real estate has always been area specific, so while national trends are interesting, they are not particularly meaningful when interpreting a local market.  New listings to MLS in the first quarter of 2018 for Maricopa and Pinal County under 400K are logging the lowest numbers for a first quarter since the Cromford Report began tracking in 2001.  Not surprisingly given the low supply, appreciation is higher than it’s been in the last several years.  To quote the Cromford Report:

“The annual $/SF for all areas & types is 7.3% above this time last year. The increase last year was 5.2%, with 5.5% the year before that while 2015 gave us 5.3%. Back in 2014 we were still experiencing the coiled-spring effect and $/SF had jumped 17.7%.”

Given the amount of market strength most sellers have (particularly under 400K), it would seem improbable that sellers are still managing to give away thousands, right?  Well history has a terrible habit of repeating itself – so just like in the past (anyone remember 2005?) – overheated seller markets don’t just cause trouble for buyers.  Yes, seller markets can still cause problems for sellers.

Here are a few of the top mistakes we currently see sellers making:

1. Thinking that having one buyer is a success story. As sellers and agents so often say “we just need one buyer” – and of course there is some truth in that. But one of the perks of a seller’s market is the potential of multiple offers.  Too many sellers (and their agents who should know better) take the very first offer that they receive.  That may be a great strategy in a buyer’s market. The premise “your first offer is often your best” – is based on the fact that long days on the market create the perception the property is over-priced or has condition issues making it harder to defend value to buyers.    By contrast, in a strong seller’s market taking the first offer eliminates the option of multiple offers.  From our years of experience, creating the opportunity for multiple offers is how we really maximize your profits.  Agents who don’t do this (which sadly is the majority) or “for sale by owners” who find one buyer are likely giving up thousands of dollars.

2. Thinking the new business models of online offers or investors are paying “fair market’ value. It is interesting to us, given that we have seen about every business model in our 40 years of practicing real estate, that this business model of online offers is getting a lot of hype. Admittedly they have tapped in to the public’s desire for Amazon type selling.  But at the end of the day, they are investors who don’t represent the homeowner.  Their pitch says things like “commissions are too high” while charging “customer experience fees” averaging 12% – far more than any commission.  Or they say “this is a competitive offer” while eliminating any competition – costing sellers 10-30% in unrealized net dollars.  Also, while telling sellers there is no need for them to go on the market, these same investors always put their homes on the market when they resell them.  Shouldn’t that be a dead giveaway as to how to get top dollar? It would be far more accurate if they said “we are investors who want to buy your home for less than it is worth and then re-sell it for a profit”. But then, that wouldn’t look like a sexy new business model would it?  Take away the online component, and this is the same old investor model that has existed since we began our careers.

3. Thinking that preparing your home for sale is a long and expensive process. Most sellers overthink and over prepare for the home sale process. The truth is that many homes can be sold in their current condition.  We sold a house that had the garage caved in and was tagged by the city as unlivable until repaired.  We had multiple offers, sold it in 4 days, obtained over list price, and the seller made no repairs.

4. Thinking that you have to show your home 24/7. Depending on the price range, we have had “weekend only” sellers or even “one weekend only” sellers. This is a supply and demand equation.  The higher the demand and the lower the supply, the smaller the window for showings required to sell. Many sellers can allow one full weekend of showings, review the multiple offers on Monday and be under contract by Tuesday.

4. Thinking that all agents are the same. Oh heck, we’ve taught you better than that, haven’t we? One of the pitfalls of a strong seller’s market is the amount of inexperienced agents it attracts.  Even the “experienced” agent does around 6-10 deals a year.  If you subscribe to Malcolm Gladwell’s theory of 10,000 hours of experience are needed to get expert at something, most agents will be retired before they hit 10,000 hours.  In the last year alone we helped over 300 sellers sell.

5. Failing to be aware of market value. The problem with either improving or declining markets is that history is not repeating itself. Therefore using only past sales will not tell you where the market is now.  In evaluating pricing, we examine the supply/demand ratio in your neighborhood which determines value.  Even then the market can move more quickly than can be seen.  Demand can be very volatile while supply is not. That is why exposing the home to the most buyers possible secures the highest price – it accommodates demand volatility.

6. Thinking that commissions are where the most money is saved or lost. Shakespeare said “A rose by any other name would smell as sweet”. Perhaps, not the best analogy when discussing the second most dreaded word in the English language “commissions” (the first being “taxes”).  The truth is that the seller is going to pay someone to sell their home.  Sellers will either pay by hiring a professional, paying “seller experience fees” to an instant offer company, or selling to an investor who “charges nothing” but takes a minimum of 10-30% off the price. Rather than quoting Shakespeare, perhaps the better quote is “there is no free lunch”.  With that said, are we still an advocate for a flexible commission structure?  Sure – we too love to save money.  Just don’t give away way more than the cost of a commission in an attempt to avoid commissions.  Instead make sure you are paying for the best representation money can buy.

Thank you for allowing us to share our thoughts on what pains us the most – watching sellers give away their hard earned equity.  As always, we are here to serve you.

Russell & Wendy Shaw

(mostly Wendy)

Supply continues to be the story in the valley (or lack thereof).  But it really is a tale of two cities – if the cities were price points – the 200K range vs. all other price ranges.  Single family homes under 200K seem to be the wooly mammoth quickly headed for extinction.  Understandably entry level buyers and their agents are bemoaning the lack of inventory in that coveted price range.  Perhaps there is a need for a bit of a reality check. Phoenix is the 5th largest city in the US. The rankings currently are:

1. New York
2. Los Angeles
3. Chicago
4. Houston
5. Phoenix

Phoenix has enjoyed a reputation of “affordable housing” due to its large land mass.  Whenever more houses were needed, builders had plenty of land to build them.  A steady source of new supply kept pricing low.  This brought about the “drive until you qualify” phenomena as the valley expanded ever outwards. Builders are happy to build but land, labor and material costs make them unable to bring single family housing to the market in the price range most needed. When we look at the valley in the context of cities such as New York or Los Angeles – do most buyers in those cities expect single family housing to be available at 200K?  No.  So it may be that we simply are struggling to come to grips with our big city status.

In any case, let’s take a look at where we stand in the early stages of 2018.  The year began with 14% fewer homes for sale than in 2017.  We are currently seeing a slight improvement over 2017 for the number of homes entering the marketplace (up 1.4%) – but it is early and the improvement is very small.  To quote Michael Orr of the Cromford Report:

“So the good news for buyers is that we do have slightly more homes coming onto the market. The bad news is that this is not enough to ease the supply shortage. In fact it is not even enough to compensate for the higher sales rate in 2018 over 2017. Closings are so far up 3.2% year over year so a 1.4% increase is less than half what is required to replace homes sold.

Looking specifically at Greater Phoenix we have 6,859 listings with a list date of Jan 1 through Jan 21, 2018. Compared with last year we have seen

• 26% fewer new listings under $200,000
• 5% more new listings between $200,000 and $300,000
• 5% more new listings between $300,000 and $400,000
• 12% more new listings between $400,000 and $500,000
• 21% more new listings between $500,000 and $1 million
• 5% more new listings between $1 million and $1.5 million
• 36% more new listings over $1.5 million

So perversely, but not unexpectedly, we are getting the largest percentage increases at the high end of the market where more supply is not really needed. Below $200,000, where supply is already extremely thin, the new listing flow has dropped even further from last year’s rate….

However the 2% of the market over $1 million benefits from having 12% of the active listings – six times its fair share. Consequently buyers have a much easier time if they are planning to spend $1 million or more and sellers are rarely in control of the negotiations. This is why you see some spectacular price cuts in the high-end market and a sales pricing trend that is flat to slightly lower. We should emphasize that this applies to the re-sale market and not the new home market…”

If you are a seller – the price point you are in will affect your “home selling experience.  Typically, the lower the seller is on the pricing scale – the higher the odds of multiple buyers competing for your home.  When demand is out of balance with supply, in favor of sellers, multiple offers occur and there is upward pressure on pricing.

This would all appear to be good news for sellers, right?  Well yes, but a strong seller market can hide mistakes that cost sellers thousands of hard earned equity.  For example, sellers can decide to “go it alone” by either selling the home to a friend or neighbor or to a “we buy houses company”.  To many that looks like success – one buyer and the home is sold without placing it on the market.  To us in the business, that looks like a disaster. How can you know for certain what a “competitive” offer is without competition? Any home has a range of value.  What pushes homes to the top end of that range?  Competition.  Capitalism is based on that very concept.  Competition (thru marketing) is how we as agents create bidding wars for the home.

Sadly it isn’t enough to create the competition, once created one must know how to handle it.  How an agent handles multiple offers separates the men from the boys.  This again is where thousands can be made or lost.  Make sure that whomever you hire knows how to get the highest and best out of each offer and to successfully exploit that competition.

It is important to note that supply and demand imbalances will correct with time. In fact, we are already seeing lowered demand than last year. The cycle basically goes like this: tight supply increases pricing; increasing prices dampen demand; lowered demand creates more supply; more supply lowers prices.  So the pendulum of supply and demand (and thereby pricing) self corrects with time.  When will that correction begin and supply begin building?  We don’t know but we will be watching for it and will keep you alerted to any shifts. Wondering about something we didn’t address here?  Contact us.  As always, we are happy to answer your specific concerns.

Russell & Wendy Shaw

(Mostly Wendy)