Know What Changed our Housing Market

In order to know what changed our housing market, one must understand that markets are constantly in flux, it’s just hard to see when you are in the middle of one.

We took a look at homes in Foster City for a client recently. The premise was they wanted to know if the housing market was in the seller’s favor, or in the buyer’s favor–if prices were going up, steady, or dropping.

Anecdotally many agents will tell you their opinion based upon their personal observations. If they had a hard time selling their last home they might tell you the market is “changing” and if their last listing flew off of the shelf, they might believe the housing market is as robust as ever. But whatever people feel, the numbers don’t lie. Numbers are an unemotional representation of what is occurring in a given market.

Let’s first discuss the market conditions. There’s a lot of hyperbole as to the state of our current housing market. Sellers are still in the mindset that they hold all of the cards, yet buyers are beginning to push back on prices. Sellers are receiving fewer offers, many homes are having to lower their asking price, and homes are selling often times below the asking price—something that rarely happened in 2012- 2015. This lends itself to a shifting market.

Clearly the sky is not falling, the shift is towards a more normal market, where homes sit on the market longer, and may or may not sell at the seller’s asking price. This long awaited market shift is not a correction, but rather a predictable and healthy move towards a more balanced and sustainable market. To be blunt, prices have risen to a level that the majority of buyers can no longer afford.

We first examined all of the sales in Foster City which occurred in 2015 through August 31st in order to compare 2015 home sales within the same seasonal periods to 2016. We added no search filter other than the date range, since the larger the pool of sales more reliable the data.

This is the data:

It’s clear that a market shift has occurred. While the median home price had a marginal increase of 3% YOY, in every category there’s a distinct shift towards a more normal market. There are more homes selling, for less over the asking price, and taking longer to do so. There are more cancelled listings, more price reductions, and for a greater amount. The inventory of homes for sale is growing—up from .83 months of inventory to three months this year.

The month’s supply of inventory is the measure of how many months it would take for the current inventory of homes on the market to sell, given the current pace of home sales. For example, if there are 50 homes on the market and 10 homes selling each month, there is a 5 month supply of homes for sale.

The months of supply is a good indicator of whether a particular real estate market is favoring buyers or sellers. Typically, a market that favors sellers has less than 3 months of supply, while more than 6 months of supply indicates an excess of homes for sale that favors buyers. Foster City is currently running a housing inventory level of 3 months.

What this means is that the market shift will no doubt continue until there’s a full blown correction. We could be years away from that happening, but we are moving into the slowest part of the season where seller’s typically net the least for their homes. And if interest rates rise—and they should since they’re at historic lows, that too will have a damping effect on home values in the foreseeable future.

How long will the new normal market continue? We’ll save that wild card prediction for other talking heads. Nobody really knows of course, and anybody that professes they know should scare you. But the market appears to have hit a price threshold. As fewer and fewer buyers can qualify for the median price home, fewer sellers will be getting windfall profits like they did during the meteoric rise over the last three years.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 years of experience in helping sellers and buyers in their community. They may be reached at (650) 508.1441.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.