By Melissa Dorman, November 12, 2018
By Melissa Dorman, November 12, 2018
Although inventory remains in short supply, the most common email I see in my inbox are price reductions. Furthermore, we are seeing regular rising interest rates. Traditionally, these events are warning signs of an upcoming market correction.
What can you do to cope if costs take a plunge in your area? As the markets transition from a seller’s market to a buyer’s market, you want to shift your strategy to focus on minimizing losses from price depreciation rather than banking on ongoing appreciation.
In order to understand your market, a key data point to keep track of is months of inventory. The rationale behind following this data point is because inventory declines precede value declines by six to twelve months!
How is Portland doing?
Portland Inner Neighborhoods had an absorption rate of about 2.4 months in October 2018, just slightly above 2 months last year this time. We are nowhere near an economic downturn. A buyer’s market is typically at 6-8 months of inventory. However, in the context of 10%+ of appreciation rate, year over year… and multiple offer scenarios with offers written tens of thousands of dollars over asking price, it feels like things are slowing down when homes sell for what they are actually worth. This feeling is further accentuated by buyers no longer willing to overpay and seller’s continuing to expect the results of 2016. The key is listing at value. Hire a good broker that will be honest with you about the price you should list at and you will get the best results.
Following below steps will help you prepare for the shift in the market.
1 Keep your attention to most active areas- If you are planning to buy then keep your eye on the areas with least amount of inventory, the reason being is the less the inventory the higher chances of it being sold soon. Where there is low supply, it creates higher demand and lower months of inventory. So act fast on low inventory neighborhoods.
2 Focus on finding a good Buyer Agent- Find an agent who will give all effort to find you right property by being very active viewing homes, even as things slow down. As the market shifts, the superior agents will remain busy and active, taking up more market share, while those agents who have been riding the rising tide of the market will fade away when the market no longer affords passivity.
3 Numbers means allot to sellers- If you are looking to sell there are few things you should keep in mind like, being realistic about price. Overpricing is the greatest error seller’s make in a shifting market. The results are devastating. After weeks or months on market, you lose all leverage and are at the mercy of low ball offers. Better to list aggressively and collect offers, putting you in the driver’s seat.
4 Knowing the benefits of selling now- Suppose the market is slowing down in your area which can be easily determined by a method known as “rate of absorption”. This data point says how many homes sell in a given month, and how many months it would take for all the homes to sell.
Let’s say the absorption rate is 8 (meaning if no new listings came to market it would take 8 months to sell all the homes on market). Thus, 12.5% of listings sell each month and 87.5% will not. As the market shifts, the absorption rate increases and the likelihood of selling goes down. As inventory grows, demand goes down, and the absorption rate grows larger. You chances of selling go down with it. If you come on market higher than value, then you are stuck doing price reductions until you catch up to the market. The problem is, your home loses value the longer you stay on market. Listing high or passing on the first few offers can actually cost you far more in the long run. So list at value, or slightly under, and capture the buyers that remain.