This Market Is Different From Previous Years
2017 Was All About Home Inventory
Ever since 2009, the number of homes for sale has been on a steady decline. 2018 is bucking that trend with a welcomed rise in home inventory for buyers to choose from. But the increase is not from more homes being added to the market. In fact, fewer homes have been added to the Des Moines MLS since January 1st when compared to the same period a year ago. So where is this rise in inventory coming from?
It’s actually a combination of a couple of factors. A slower start to home buyers hitting the streets so far in 2018 and an increase yet again in new construction inventory. Of the 3,110 homes for sale on March 31st, 1,341 of them were new construction. That’s almost 44% of all homes for sale (up from 41% a year ago). And when you factor the median list price of new construction at $303,800 compared to resale at $173,000, that’s over a $130,000 gap.
Traditionally first-time home buyers come out first and the general activity is in the lower price ranges. As homes begin to sell, sellers having sold their home can now begin their home search, typically in a higher price range that they currently own. As they become home buyers, they begin to chip away at the next price point of homes for sale and the process continues until the market hits a peak. I call this trickle up economics.
2018 Is All About the Cost of Borrowing Money
In an economy where buyer income is on the rise as it has been in the past 3 years and mortgage interest rates remain low, affordability of higher priced homes also increases. That is what we have experienced for the last 2 to 3 years.
But look at where mortgage interest rates have moved just since the first of this year.
The cost of a 30-year fixed rate mortgage has risen by nearly ½% since January 1st and this directly affects the affordability of home buyers. In fact, predictions are that this same rate will be at 5% by years end.
A qualified buyer’s purchasing power drops by $10,000 for every ½% increase in their mortgage interest rate, so a buyer in January that could afford a $200,000 home can only buy a $190,000 home at the end the March.
Add to this the increase in home prices and you can see how quickly the balance can shift for buyer’s affordability.
The bottom line is that if mortgage interest rates continue to climb, either home values will begin to level off or home buyers will start sitting out and waiting for rates to come back down (which they won’t). Either way, 2018 appears to be in for a shift in the status quo.
Monthly Market Snapshot as of March 31st
Resale Month of Inventory continues to drop closer to 1 month. New Construction finally moved into an Even Market category at 5.7 months. Closed transactions continue to stay ever so slightly ahead of last year, but with weakening Pendings, it in inevitable that Closed sales will begin to lag behind last year. Median sale prices are up 8.6% over last year and at that pace, we are heading toward issues making appraisals in the coming months. Rising home prices are moving faster than Pending sales as we hit our Spring activity stride.
2018 Year Trend Reports
Active – Pending – Sold – Balance of the Market
Compared To 2017
(Click Graphic To View Full Size)One quarter of activity does not confirm a complete change in our market, however it is a strong trend that will need to be watched in the coming months. If Active home inventory levels continue to increase and Pendings continue to trail, Home prices will begin to stall.
Months of Inventory by Buyer Pool and by Price Points
Home Inventory and Pending Sales Compared Over Time
(Click Graphic To View Full Size)
This graphic allows you to see how Home Inventory and Pending Sales both compare to different points in time from a week a back to as far as 9 years back.
~Les Sulgrove, Broker
VIA Group REALTORS
If you are interested in selling your home or purchasing a home, give me a call! I will help you determine your best strategy based on your local market data.