By Steven Thomas
Summer is here! It is the season of longer days, plenty of Southern California sunshine, beckoning sandy beaches, and refreshing dips in the pool. With summer comes all of its distractions. There are also family vacations, Disneyland, California Adventure, the Discovery Science Center, Knott’s Berry Farm, Legoland, Magic Mountain, Raging Waters, Sea World, and the San Diego Zoo.
The best time of the year to sell a home, the Spring Market, is officially in the rearview mirror. It is now the Summer Market, the second-best time of the year to sell a home. For some, buying a home takes a back seat to family fun. Many will still purchase, but not with an extreme sense of urgency like in the spring.
Sellers and real estate agents have already felt the shift in the marketplace. It started a few weeks ago with college graduations. Today, the sense of urgency has shifted from buyers to sellers. Sellers know that they need to open escrow soon or risk passing up the opportunity to sell during the Summer Market. In fact, they have six weeks to negotiate a deal before the market slows even further.
Here is the thing. Most potential buyers prefer to move during the summer months, before the kids go back to school. That means closing on a home and moving into it by the end of August. To close by the end of August, a home needs to be placed into escrow by the end of July. Typically, a home takes about a month to close after negotiating a deal and opening escrow. In looking closely at the housing cycle, demand starts to drop at the end of June. From there, it plateaus during the month of July. Finally, demand steadily drops from the start of August on.
There is something to be said about reaching August in the housing market. At that point, the end of the “school summer” is fast approaching. Buyers with school-aged children start backing away from the housing market. Because moving during a school year is very distracting, many buyers put the home-buying process on hold and wait until the following year.
Sellers really need to understand that the window of opportunity is closing. Not only are there only weeks left before many will have missed the boat, but also this year is a bit more challenging than previous years.
Demand is muted compared with 2012 through the 2017 (see Figure 1). This trend emerged last year. In 2018, through May, demand (the number of new pending sales in the prior thirty days) was down by 13 percent compared with 2012 through 2017, the housing recovery. In 2019, it is down 20 percent compared with those same years. The muted demand has made it more challenging to sell. Homes are not appreciating like they used to. They have paused because values have reached record levels and affordability has deteriorated tremendously. Over the years, incomes did not keep up with home price appreciation. Many believe that the current seven-year housing run is reaching a peak and running out of steam. These factors are softening demand.
There are a lot more homes on the market. In fact, this is the highest active inventory level since 2011 (see Figure 2). The inventory reached 7,500 homes for sale at the beginning of June. That is 27 percent more than last year, an additional 1,600 homes. The big rumor is that there are a lot more homeowners opting to sell and fooding the market. The reality is that there are nearly the same number of sellers coming on the market year after year. In 2017, from January through May, 18,264 homes were placed on the market. In 2018, there were 18,199. And there were 18,180 this year. No food. Instead, fewer and fewer listings have been converted to sales because of muted demand. With less sales success, the active inventory has grown.
For sellers, it is like the tick… tick… tick… of valuable time passing by before the summer housing train leaves the station. Come August 1, sellers will feel another noticeable shift in the housing market. To fnd success and truly take advantage of this second-best time of the year to sell a home, sellers absolutely, unequivocally must price their home with care. Ignore the impulse to arbitrarily price a home, stretching the asking price signifcantly above the most recent comparable sale. That is a recipe for disaster. A home priced $20,000 above that sale will sit with very little activity, attract no offers to purchase, and lose valuable market time. Instead, sellers really need to rely on the expertise of a seasoned, experienced REALTOR® . Tick... tick… tick…
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.