With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL
Pending Home Sales Down in January 2017
Pending home sales dipped in January 2017, a state of affairs which Terry attributes to an imbalance between supply and demand in the housing market. Housing inventory is less than 6 months, which means, in theory, that if no new sellers added their homes to this inventory, all available supply would be sold in less than 6 months. This sub-6 month supply, incidentally, is the criteria for using the term “seller’s market,” and that is certainly the case in locations across the country today. Terry notes that roughly only 20% of homes that hit the market sell in a timely fashion, and the remainder – which fail to sell because they’re too expensive or unattractive for other reasons – constitute the bulk of the unsold inventory.
Low Housing Inventory: Seller’s Market
It might seem counter-intuitive that pending sales have fallen in a strong housing market, but, in part, the recent successes for home sellers have set the stage for the current hiccup by depleting the number of sought after homes for sale. Returning to the lower number of pending home sales, fewer sales contracts means fewer pending sales, and, eventually, fewer closings. Terry explains that the lack of sales contracts, in her experience, is a result of buyers not finding what they’re looking for and both sellers and buyers not being able to get on the same page in terms of the value of a home. For many homes on the market, a holding pattern has set in, with both buyers and sellers adopting a wait and see attitude. This is the basic reason for the downturn in pending sales and completed sales.
She describes many sellers as “greedy and unrealistic.” Delving a bit deeper into buyer psychology, Terry observes that a large number of would-be buyers, having witnessed the mortgage meltdown of 2007, are afraid the housing market is overpriced and are wary of buying into a market top. They see housing prices as being near a peak and expect them to, at best, flat-line for the next few years. The number of homes in the locations, condition, and price range that buyers find attractive is very low. Finally, uncertainty in the political realm and euphoria in the stock market are also contributing to a sense that the economy may be overheating.
Luxury Market on Hold
As for the luxury market, asking prices have been coming down, sometimes significantly in dollar terms if not in percentage terms, but the number of buyers in that segment is not large enough to absorb the slack in the market. The strength of the US dollar is also weighing down on sales because it makes these properties more expensive for foreign cash buyers. Compound this factor with a frenzy of new building and thus competition in the high end of the market – at least in Florida – and buyers are taking more time to find more value and better deals.
First-Time Home Buyers Seek Median Priced Homes
The market has been healthier and sales have been strong in other price ranges, particularly in and below the median 300-400K realm, according to Terry. For sellers, asking prices still need to be tuned to the local market, with realistic discounts for needed upgrades and other liabilities. First-time home buyers are out in force and ready to bid on well-priced houses. Correctly priced homes in the median range are still being bid up beyond the asking price, a sign of on-going strength in this niche. Meanwhile, expensive waterfront properties and overpriced homes in the wrong locale are languishing and for all intents and purposes aren’t receiving bids near listed prices.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent, Terry Story. Terry’s a 28-year veteran with Coldwell Banker located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: What is going on in the real estate market these days? We’re seeing that supply and demand are totally out of whack. What is that doing to home sales?
Terry Story: You know, the market’s crazy. Right now, we’re dealing with pending home sales weakening in January. Well, how could that be, the market’s so strong? Well, it’s real simple, Steve; there’s an insufficient supply of homes. In order to have pending sales, you have to have contracts pending. In other words, you have a meeting of minds between buyer and seller. We’re struggling with that.
The reason why is lack of inventory. There’s strong demand on the buyer side. I can say first hand this is happening to me. I go around, I’ve got buyers in the car, they want to buy, I show them the inventory, they’re like, “Yuck.” There’s nothing they particularly care for. They feel that the sellers are asking too much, and so they’re sitting there; they’re waiting. We’re having a drop in the pending home sales, which ultimately will turn into a lower number of sales.
Steve Pomeranz: I don’t understand. Let me back up a little bit.
Terry Story: Sure.
Steve Pomeranz: Buyers are out there. They’re reticent to buy because they think prices are too high, but I’m not really sure I understand that because there’s a lack of inventory on the market. Is there the fact that there is a lot of inventory, but prices are too high? Or there is a lack of inventory period?
Terry Story: Well, it’s really a combination of both. I mean, there is inventory out there. We’re at what they would consider below six-month supply which makes it a seller’s market, so the sellers are still calling the shots. When you look at the percentage of the homes that actually sell that are on the market, Steve, it’s around 20%. That 80% that just sits there, which is the inventory, if it’s not in the condition that the buyers expect for the price that they’re willing to pay, it just sits there.
It always comes down to price, condition, location, when it comes to selling a house. So many of these sellers right now just aren’t being reasonable and realistic as to what their homes are worth. This last couple of weeks, I’ve written up several contracts and just haven’t been able to have a meeting of the minds between buyers and sellers. It really comes down to, buyers are like, “Okay, I really need a house. Let me just put in an offer on this one,” not even really being in love with it and not being able to work it out.
The buyers are being a little finicky, and I’m not 100% sure why. I think there’s, maybe in the back of their mind, because of values are up, there’s some uncertainty a little bit with the changes that have taken place in the political scene. The stock market’s gone through the roof. You would think that would encourage people, “Wow, the market’s, you know, really on fire,” but it’s almost as if they have this memory of the market back in 2006-
Steve Pomeranz: Yeah, they don’t want to pay too much and get stuck again.
Terry Story: And they don’t want to pay too much and get burned. They also, a lot of the smarter ones, are realizing we’ve been in this, now, for over 10 years, and we do know, and everything that you even read, it’ll show appreciation will rise a little bit more, but it’ll be less than last year. Then they’re predicting for the following year, even less than that. We’re still increasing, but it’s starting to look more like a flat-line, or more flat-lined that it was.
Steve Pomeranz: Well, also the idea is that mortgage rates have increased some. There is an expectation that they may increase more, so there’s just a lot of uncertainty.
Terry Story: Yeah, but that usually has the opposite effect where people are like, “Well, I better jump in before the rates go up any higher.”
Steve Pomeranz: But, also, luxury homes are experiencing a reduction in prices as well too, right?
Terry Story: Yeah that’s right. The luxury market, there’s an article saying that sellers are slashing millions off their asking price. Well, you know, when you’re dealing in multi-million-dollar listings … For example, there’s a story of one that was on the market at $11,900,000; they dropped it a million dollars. Oh, wow, that makes it now more affordable. How many people are in that market? Really, you’ve got global events that have put a damper on that. You’ve got the U.S. dollar becoming stronger, so it makes it a little bit harder for other people…
Steve Pomeranz: Yeah, for foreign buyers to come in.
Terry Story: …for foreign buyers to come in. Really, our overseas buyers purchase up a lot of these real high-end properties.
Steve Pomeranz: One of the areas that receives a lot of overseas purchases is this area in Miami called Aventura. I noticed in the material you gave me that there’s a 190-unit building in Aventura discounting the $2.5 to $3.3 million units by upwards of 15% to 20%. Maybe, I think, prices are just gotten really out of control, and now they’re starting to come back to earth. Plus, I know in that area, there’s just an awful lot of building, a lot of cranes going up, a lot of competition.
Terry Story: Absolutely. That’s all that’s happening. There’s just more competition. Buyers are being a little more cautious. The dollar is stronger making it a little bit harder for overseas buyers to purchase, and sellers just really being greedy and unrealistic. When the market was jumping 6%/7% a year, the sellers just kept raising the numbers. It’s like the stock market, there’s always a ceiling. We’ve hit somewhat of a ceiling.
Steve Pomeranz: Tell me about your particular practice. You’re in the residential home market in Boca Raton, kind of a suburban community. What’s selling these days for you?
Terry Story: Anything in the lower price, below the median price, is selling. We’ve got a little bit of a funny lull going on between eight and a little over a million. Then things pick up a little bit. Regardless of the price point, for sure anything under that median price is selling very very fast, assuming that it is properly priced. Just because you have a $200,000 house and you think, “Well, I’ll just put it up for sale for $350,000.” No, that’s not going to fly; it has to be priced accordingly. Those are selling like hot cakes because of the first-time home buyers. Those first-time home buyers are really trying to snatch up property. I’ve given an example before, it was in the 400 range, but many cases it is in this marketplace first-time home buyers, I had five offers on a house in a day, and I sold it for $15,000 more than asking.
Steve Pomeranz: We had talked about that in the past.
Terry Story: That’s right. So, there it’s very active. When I look at some other price points, I’m just seeing reservation, really studying it, they’re not pouncing on it right away. Just waterfront properties, I’m showing a lot of waterfront properties right now in that $3 million mark. They’re not moving. They’re on the market for long periods of time, and the sellers just feel that their homes are worth more than what they really are.
Steve Pomeranz: We’re out of time, unfortunately. You know, I mentioned Aventura before, it occurred to me that we are doing a roundtable event in Aventura on Thursday, March 23rd. I wanted to get that in there before we go. My guest, as always, is Terry Story, a 28-year veteran with Coldwell Banker, located in Boca Raton, Florida. She can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.