We all know the market is slowing down. Inventory is rising. The number of sales are fewer. BUT the prices are still going up.
To better understand what is REALLY going on, you have to look at what is not selling and why. The two charts below show that the price of properties SOLD keeps going up year to year. Likewise, the properties currently in escrow have a median price higher than anything ever sold to date.
BUT the median price of homes NOT sold is way out of proportion to what the sellers SHOULD be asking.
In the chart above, you can see that the median price of homes for sale (SFR and Condos) priced under $800,000 sold at a median price of $377,257 in the 12 months preceding 11-25-2005. (5,826 of them sold with the average days on market of 21 days.)
The median price of homes sold increased 12.7% in the twelve months ended 11-25-06 from $377,257 to $425,000 and the days on market decreased from 21 to 19 and the number of properties sold decreased from 5,825 to 4,932. So the homes that sold did sell higher and in less time, but fewer properties sold overall. Partly because the price increase caused some of the sold inventory to jump over the $800,000 mark.
In the 12 months preceding 11/25/07, the median price increased 5.8% for homes sold from $425,000 to $449,950 and the days on market increased from 19 days to 24 days. Those currently in escrow represent a 4.4% increase over the median of anything sold to date in 2007 at $469,000 vs. $449,950. So prices are still climbing.
But the biggest news is that the median price of homes NOT SOLD is $519,245. That is 15.5% higher than homes sold for in the last 12 months. Sellers are simply asking way too much to be successful in their efforts. So when you see price reductions, that means the sale prices are coming down to where they should have been in the first place. Not as high as sellers would like; but still higher than the comps.
If sellers don’t Get Real Real Fast, then the market will start undervaluaing due to increasing overpriced inventory.
In the chart above you can see that many of the homes priced up to $1,000,000 are even more “off” as to asking price.
The median price of homes NOT sold is $579,000, while the median price of homes sold from 11-26-06 to 11-25-07 is only $470,000. The median price of those currently in escrow is $495,0000, so prices still increasing. BUT the properties NOT sold have a median price of 23.2% over the median price of homes sold in the last 12 months. Way out of line.
Sellers are simply asking way too much with no basis for this pricing. So to a large extent more things aren’t selling because they shouldn’t be selling. Sellers are simply asking way too much relative to reality. Buyers are correct to refuse to buy property for way more than it is worth.
A 23.2% increase? Who are they kidding? Apparently…no one but themselves.