Real estate market is very healthy

Key metric move indicates stable market

If you have ever visited a seriously ill family member or friend in the hospital, you probably noticed they were wired into a machine that showed their vital signs. It indicated heart rate, oxygen level, body temp, blood pressure, etc. Doctors and nurses can come into a room, take a glance at that machine, and get a pretty good idea on how the patient is doing.

Heart rate seems to be a key indicator. The patient needs a strong heartbeat, but not a fast heartbeat, especially when coupled with other indicators like high blood pressure and low oxygen levels. Clearly, each is important, but, if the heart is not working correctly, then there are problems.

In our experience, a key vital sign in a real estate market is the list-price-to-sales-price ratio. Over the years, we have noticed that the list-price-to-sales-price ratio is one of the best indicators of the current market. By market we mean, “Is it a stable market, buyer’s market, or seller’s market?” This ratio is tied closely to the inventory metric, much like, perhaps, blood pressure and heart rate.

Looking back to 2013 when we were just bouncing off the bottom of the real estate recession, residential properties on Lake Martin were selling for 91.7% of listed price. In other words, the average seller was discounting their sales price by 8.3%. That (91.7%) is a very low ratio and an indicator of a hyper buyer’s market. This was a function of too much inventory and too few buyers with 21.19-month supply of residences. That means, if nothing new came on the market, it would take 21.19 months to sell everything listed for sale.

Since 2013, this ratio has steadily improved moving into what we would describe as just a normal buyer’s market in 2015, as that ratio approached 93%. This again is further indicated by lower inventory levels as the inventory dropped to a 15-month supply level. While much better than 2013, you may not have wanted to be a seller in 2015, given there was enough supply to give a buyer the upper hand in negotiations since they could buy the house down the street.

Fast forward to this year and, for the 12 months ending April 30, we are noting that the sales-price-to-list-price ratio is now approaching 95%, which indicates a stable market. Inventory has dropped to just a 10.82-month supply which is a great reduction from 2013 and still impressive compared to 2016.

Healthy Steps in a Healthy Market

Lots of people interested in selling their property with this vital sign might think this is a time to raise prices or rush to the market to take advantage of higher prices. For those folks, we would say not so fast. While you are likely to get a higher percentage of asking price, you are not likely to see a much higher average price quite yet. That will come — but we think in the future as inventory contracts further.

For those interested in making a purchase, the chances of exciting a seller with a 90% offer are over. You are likely to get a cold shoulder instead of a counter offer. There is slim chance of an acceptance.  With clean, attractive and well-cared-for properties selling quickly, we recommend you make a more aggressive offer. Many properties of this type are receiving multiple offers. Also, there may not be another one down the street.

For everyone, this means that, with sales levels leveling off, inventory shrinking and a likely improving economy, there will be price increases in the future – likely in the near future. For those interested in selling, but not pushed to sell, it may pay to wait. For those who made a recent purchase — or considering one — you are likely to enjoy a term not used often in 2013: Appreciation – in value and more importantly, lake life!

We keep track of all sorts of data. Call one of our Sales Executives today at 256.215.7011 for more information.