Are Sellers Feeling the Summer Heat?

June 29, 2009

by Scott Sambucci


While digging around in this week’s data update, I found an interesting “tick” – the number of active listings with price reductions.  Statistically, we called this “Percent Priced Decreased” which simply shows what percentage of on-market properties have experienced a price reduction in the last 90 days.

The 2009 Spring selling season has shown some positive movements – transaction volume is up notably even though final sold prices are below.  The good news is that the market did some clearing over the past couple of months resulting from lower prices.  But, what happens to the homes still on the market as we plow ahead into the dog days of summer?  It could mean bad news if you haven’t sold your home yet.  Here’s what I mean:

Percent Price Decreased June 09

Notice that little “tick” upwards for this last week in June 2009?  Now I’m fully aware that a single “tick” doesn’t make for a trend, but there’s certainly something to watch here as the summer moves along.   Also, compare last year’s trend of home price changes to this year.  Throughout the year, there are a number of interesting movements of this stat.  (Remember, this “Percent Price Decreased” stat tracks the number of active listings with price reductions in the most recent 90-day period.)

Here’s my play-by-play analysis of the last six quarters since January 2008:

Q1, 2008: New homes are entering the market to join laggards from 2007, so the percentage of homes with price reductions fell slightly as the mix of homes on the market changes a bit, but then started to rise in March and early April 2008.  This rise is likely attributed to those sellers that entered the market and quickly realized they weren’t getting any bites on their initial list prices.

Q2, 2008: There is initially a drop in early April which can be explained by the 90-day timeline expiring on those homes that reduced their price in late January/early February – those homes still on the market from 2007.  As the Q2 progress, sellers continued to drop their list prices through the summer of 2008 due to buyer inactivity.  We know that 2008 was just plain awful for the US Housing Market.

Q3-Q4, 2008: Again we seen a significant drop at the beginning of Q3 from those price reducers in the early Spring no longer in the 90-day window.  As Q4 wears on, sellers still on the market continue to search for the asking price that will entice the relatively few buyers out there to bite.

Q1, 2009: By now, the sellers on the market are probably hoping that 2009 will bring a new batch of buyers but there is that spike in April 2009 that indicates some sellers out there aren’t seeing the activity they hoped.

Q2, 2009: Here’s where we see this year’s housing market activity showcased.  Buyers, as we’ve seen in transaction numbers, came out of the woodwork this Spring and begin hitting the ask prices and snapping up homes for sale.  The percentage of active listings with price reductions declines steadily in Q2, 2009.

Q3, 2009: Here we are today – for the first time in three months, we’re seeing a rise in the weekly number of active homes with price reductions.  Is this a sign that sellers are ready to hit the panic button?  We have Independence Day weekend coming up, and surely the time where active sellers start to wonder about the contingencies for homes where they’re in contract and getting into the new home in time to get settled before school starts in the Fall.

There is definitely buyer activity out there so this isn’t all doom and gloom for the sellers out there.  Many properties will continue to sell this summer, but as with last year, it’s a matter of adjusting prices to match where buyers are willing and able to purchase those homes.

At least we know that the market works – prices do adjust and adjust quickly.  When there’s sparse activity out there, this shows that sellers adjust their prices downwards which offers immediate insight into the current real estate market.  One need not wait for final sold prices to see how the market is doing if you watch how sellers are reacting to the buyer’s behavior.

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