Notice that I didn’t say we were back to a normal market. I feel like that word has left the building. What we are beginning to see as we ended the 2nd quarter is a return to a familiar pattern. It’s true, there are some parts of the market that haven’t shown a return to past trends, but I believe those changes are coming. Let’s break things down.
We are at the half-way point in Iowa real estate sales and this month, I look back at the 2nd Quarter of this year and compare it to the 1st Quarter as well as far back as 2017. This 5-year history helps us to really analyze where we are in our current market.
Homes For Sale
As you look at the Homes for Sale at End of Quarter, one thing should stand out. The rise in home inventory during the second quarter of 2022 looks very similar to 2017, 2018, 2019 and to some extent 2021. The outlier year of course is 2020, when Covid affected 99% of our real estate market.
The one difference at the end of this most recent quarter is with 2,257 homes on the market, that number is higher than any other point in 2021 and rising weekly. So far during the first week of July, the homes for sale count is already pushing 2,500.
As the inventory count rises, the Median List Price is beginning to drop. This downturn may be an indication that some homeowners who have been sitting on the sidelines during Covid are ready to enter the market by putting their homes up for sale. We need another couple of months to verify this, but this is a good sign for motivated homebuyers still willing to buy even with rising mortgage interest rates. Again, 2022 is acting a lot like years prior to Covid with this $7,000 dip in the Median List Price.
Homes In Sale Pending Status
While the Homes For Sale segment of our market is increasing, the number of homes under contract and in the financing, inspection and title clearing process is well behind 2021. A year ago, at the end of the 2nd quarter, there were 4,291 homes in Sale Pending status. This year as of June 30th, there were only 3,091 homes pending. That’s over a 25% drop from last year at this time. Additionally, 2022 is the only year in this comparison going back to 2017 that 2nd quarter pending sales were lower than 1st quarter. This is truly a sign that changes are happening.
The median price of sales pending did rise slightly over the 1st quarter of this year and currently sits at $300,000. The explanation of this is likely due to the role of new construction homes still being sought after.
I named the point where the number of homes in sale pending status exceeded the count of homes for sale, the Inverted Market. We have been in this inverted state since the 2nd quarter of 2020 and continue to be in it as of today. However, there are signs that we are heading back to a normal ratio of pendings and homes for sale. 2022 pending sales are markedly lower and more along the pace of 2020. At one-point last year, we had over twice as many homes in sale pending status as we had for sale. This made for the perfect storm of frantic buyers making offers within minutes of seeing a home, many times above list price and waiving contingencies such as inspections. 2022 has seen a little of this type of buyer activity this year, but nothing to the extent we did in 2021. In fact we are tracking more like 2020 did.
Closed Sales
Closed sales are a product of past market activity. Homes that are recorded as closed today for example, likely went under contract 30 to 45 days ago – upwards of 4 to 5 months ago if new construction. It was not a big surprise that at the end of the 1st quarter this year, we still saw a year over year increase in closed sales. It wasn’t a large increase, but it was still on track with what we saw during the 1st quarter of 2021. Keep in mind most of those homebuyers were not affected by the fast rise of mortgage interest rates since they were either already locked in around the low 3% range for their mortgage and likely even under 4% if they got an offer accepted as late as the first week of March. Buyers after that time were scrambling to find that next home AND lock their payment in as they watched rates rise daily.
Recorded closed sales at the end of the quarter were less than 100 homes ahead of June 30th, 2021. During the “Covid years” of 2020 and 2021, rising third quarter sales were common as buyer activity was driving the real estate market. With the drop in pending sales, it’s almost certain that we will see a 3rd quarter drop in closed sales compared to this quarter. I continue to predict that 2022 will not achieve the same number of closed sales as last year. 2021 finished with over 17,000 closed sales and I believe we will likely be closer to 16,000 this year.
Lastly, with the steady increase of homes building the market, the Months of Inventory of listed properties are slowly creeping upward with sellers of existing resale homes still having the upper hand in a Seller’s Market. New construction single family and condo/townhomes are at the opposite end of the spectrum. Buyer’s looking at new homes have the advantage searching in a Buyer’s Market for that category.
Days on Market are creeping upward as expected in an ever-changing real estate market but still very close to 2021.
The big question is how inflation, and the fluctuation of mortgage interest rates will play out during the second half of 2022. The days of multiple offers and bidding wars may become a thing of the past. There is a comfort to returning to familiarity in the real estate world, even if it’s not going to be back to what used to be normal.
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VIA Group REALTORS
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