An Increase in Competition to Sell


By Steven Thomas
REPORTSONHOUSING.COM

Throughout the Spring and Summer Markets, the active inventory continues to rise.

Spring is by far the busiest time of the year for real estate activity. It is followed by the dog days of summer (see Figure 1). Despite increased demand for housing and so many transactions put together between buyers and sellers, the active inventory cyclically grows the most from April until it peaks in August. This year will not be an exception.

The year began with not enough homes on the market. That was the theme not only in Orange County, but across the United States. Locally, the year started with 4,071 homes on the market, the second lowest start in the past decade behind 2013’s anemic 3,161 homes (see Figure 2).

The active inventory remained low throughout the first quarter, with only limited growth. Everyone was wondering when home owners were finally going to step up and place their homes on the market. Compared with the past couple of years, the number of homes that were listed for sale in 2017 was down by 9 percent. The milliondollar question was why were so many home owners sitting on the sidelines and not selling this year. Was it the new Trump administration? Were home owners fearful of not having a place to move to if they did sell? Was it the extremely wet winter? Nobody seemed to have an answer.

Regardless of what caused the delay in home owners’ placing their homes on the market, that all changed during the first couple of weeks in April. The trend of an anemic, flat inventory with very little growth was officially over with a 6.4 percent rise in the active listing inventory in a fourteen-day span. It was the largest increase in the inventory since the start of 2014, more than three years ago. The inventory surpassed the 5,000 mark and did not look back.

The increase in inventory was not isolated to any one price range; instead, every price range realized an increase. It was as if the green light for home owners to place a For Sale sign in their front yard had finally been turned on. Whatever kept home owners on the sideline and not actively participating in the housing market had passed.

The anemic inventory trend was quickly replaced with a new trend of more and more seller competition coming on the market. For buyers, it was a welcome sign. In another month, there will be considerably more homes on the market, more choices for buyers, and demand will start to soften with all the distractions of summer setting in.

What does this mean for sellers? First off, the Spring Market is still the best time of the year to sell. The hottest season in housing is from mid-March through mid- June. Despite spring and all of the increased activity, the inventory continues to grow. The largest volume of sellers hits the market during the Spring Market, many of them a bit overzealous and overly anxious to take advantage of the most active time of the year. During this season, sellers who price their homes close to the most recent comparable closed and pending sales will find success. Price is the principal factor in finding success. Condition, upgrades, and location are extremely important as well. While sellers do not have any control over their location, they can control condition and upgrades.

When a nicely upgraded home in excellent condition comes on the market priced close to its Fair Market Value, it attracts a ton of attention, plenty of showings, multiple offers, and a purchase price close to—or even more than—the asking price. Stretch the price too much, and sellers will rack up extra market time until they adjust their prices back to reality. Unfortunately, this strategy backfires because they are unable to take full advantage of those first few golden weeks after a home comes on the market. It is during these weeks that a home attracts the most attention. It is wise to cash in on all of the extra attention right out of the starting gate.

The expected market time—the amount of time it would take to list a home today and then place it into escrow (based on the inventory and demand)—traditionally hits a low for the year at the start of April and then continues to grow until it peaks at the end of the Summer Market. This year is not going to be any different. It will grow from here, which means it will be more challenging to sell as the year rolls along. Carefully pricing is the only antidote to avoid spending way too much time on the market with no success.

The Spring and Summer Markets may be the busiest time of the year for housing; but as the seasons roll along, the overall housing market will finally become a bit more favorable for a buyer as sellers meet with more and more competition. It will still be a seller’s market, but sellers will have to tread carefully.

Steven Thomas has a degree in quantitative economics and decision sciences from the University of California, San Diego, and more than twenty years of experience in real estate. His bimonthly Orange County Housing Report is available by subscription and provides housing market analysis that is easy to understand and useful in setting the expectations of both buyers and sellers. His website is www.ReportsOnHousing.com.