Market Update and "Let's Start High": Not a Great Idea

 December is a time of reflection and anticipation - digesting what has happened and accordingly what we might expect and need to plan for moving forward.

Relative to the residential market there's no question the unprecedented rise in interest rates in 2022, and continuing in 2023, albeit attenuating to around 7% will likely continue into 2024 to the extent current FED monetary policy continues. 

Yes, there's speculation they'll reverse course, but it would be a mistake to bank on that (pardon the pun).

• The consequences of higher rates have been dramatic in terms of unit sales (demand) in most market segments, though, from the industry's point-of-view there's the caveat that appreciation has mostly sustained our Sales Volume.
• The consequence to sellers in terms of prices is yet to be realized. Note: 
• Prices are a lagging indicator.
• This is what we need to prepare for...

Current Context getting our attention: 

• As prices have been mostly maintained for those properties that are selling, the percentage selling has dropped significantly (demand).
• This is evidenced in the dramatic downward trend in the Listing Success Rate or Ninja's Odds of Selling.
• The result is accruing inventory, as the number of Active Listings are generally on the rise (supply).

• 
  

The law of supply & demand: As demand drops relative to supply it eventually must show up in Sold Prices - 

This is my purpose today - making the case that if present trends continue we would do well to start thinking about strategies we'll need in 2024 to mitigate the shifting sands toward a market favoring buyers in many market segments, albeit while the uber high end is also shifting, it's doing so more slowly, as supply demand dynamics are demonstrably different eg. rate resilience.

• Keep in mind again, price consequences are delayed and also dependent on Price Range (affordability) factors.
• Keep in mind also, predicting is tricky business. 
• I don't know if prices will begin to moderate in Q1. 
• What I do know is if the current dynamics of increased supply relative to demand continues, more price adjustments are inevitable AND in any case, we want to avoid setting up our sellers for increased marketing times and the potential of chasing a shifting market.

The Metrics of Interest Rates and Supply vs Demand - preaching to the choir ~

Here's what the recent trend in interest rates looks like ~

This you know. 

But what I wanted to point out is just how direct a correlation there is between interest rates and demand.

As interest rates rose the Cromford Market Index anticipated a corresponding drop in Demand, which materialized very quickly evidenced in Listings Under Contract, which, of course, you experienced firsthand. ~

 

Even so, the low supply (relative to low demand) has sustained a Sellers Market AND Sales Prices, though the general movement since Q1 of 2023 toward a Balanced Market is now at hand, with a Buyers Market evidenced by an increase in price changes and marketing times in a growing number of locations and price ranges.

This CMI graph with year-end interest rate labels pretty much tells the story ~

Note: Yes, the graph below is sourced from the Valley-centric Cromford Market Index, but applicable statewide, as the dynamics of interest rates, inventory (supply) and unit sales (demand) are essentially the same.

Future Implications ~

All of the above suggests as Supply increases - in no small part from unsold properties accruing from fewer sales (most particularly under $1M), it's inevitable more future Sales Price 'corrections' are on the horizon.

Here's the strategy - beginning with what you need to know about Price Corrections:

1. On average properties that undergo price adjustments have triple the marketing time!
2. And if they do sell they often sell for less than had they accurately priced (competitively positioned) to begin with.
3. We have the metrics to prove this.

So if you're interested in getting the highest price in the shortest period of time (as all motivated sellers are), we would do well to brush off the tools that we've used successfully in the past to help our sellers do just that.

Our primary tool is competitive positioning - with renewed emphasis on the fact sellers can't afford to miss the early, motivated buyer activity.

 

When you miss that early, most motivated activity - from 'the hovers', as I call them, you've lost them. 

They don't come back - reason being they've figured out there's always competition for the best, so the action is with new, competitively priced homes.

This is a fundamental message!

Oue Challenge:

Communicating this message regarding the merits of competitive positioning is 'counter-intuitive' to sellers. 

• You think their home is special.
• You see no downside to testing the market.
• You posture that they can wait for the right buyer.
• Etc, etc.

What you fail to understand without education is the irony that accurate pricing avoids price changes, while dramatically shortening their marketing time and most often increasing your net. 

It's a no-brainer! Yet, it's not understood, even by many agents!

In our morning Agent Training this week I will demonstrate -

1. Specifically how to competitively position a listing in any market segment using simple formulas and built-in FlexMLS tools and

2. Share the metrics that prove that avoiding price changes cuts the marketing time by 2/3rds and generally increases the sellers net!

Here's a sample:

Scottsdale Sales over the past 12 months; between $1M and $2M ~

Note that of the 1,489 properties that sold in Scottsdale in the past year between $1M and $2M, the 839 with No Price Changes (competitively positioned) on average sold in 37 days with an average of a 2.7% discount at time of sale off their original price.

By contrast, the 650 sold properties that had 1+ Price Changes took an average of 116 days to sell - TRIPLE the marketing time; took a 12.7% discount off their original list price only to net less than those priced accurately to begin with!

• This is your proof of the efficacy of competitive positioning. 
• This is powerful in terms of seller education - influencing them to do what's in their best interest, though often counter-intuitive. 
• This is differentiating, as most agents are ill-prepared to make the case that will deliver the most successful seller outcome, as they simply don't have the rationale or the metrics to make the case.