Low Inventory Shapes Market

Repeating the pattern that began this January, sales in March were lower than last March because of severely limited inventory. With only a 9-day supply of available homes, buyers are competing with each other, pushing average prices up 16.6% over the last 12 months. Multiple buyers, escalation clauses and audacious offers have become regular stories in our residential market.

The supply of resale or existing properties is so limited that the price per square foot of existing properties has risen above the price per square foot of new homes, a phenomenon not seen in my 40 years in this market.

Anecdotal data reveals that many owners are holding on to their properties for fear of not being able to find a replacement property. 

The data below compares first-quarter results for the last 4 years of limited inventory during which time the average sold price has increased 49%.

Same Month Sales are Down

Same month sales – meaning sales this February compared to sales last February – are down once again, continuing the trend started last month. And it’s all due to lack of inventory.  

As you can see from the chart below, Ada County housing inventory at the end of last February was more than three times the amount of inventory at the end of this February, thereby limiting buyers’ choices, increasing competition among buyers,  and causing prices to increase more dramatically (the median sold price increased 14.8% over the last 12 months).

Another unusual recent trend that has continued is that the price per square foot of existing (resale) properties has exceeded the price per square foot of new homes, $211 compared to $205. We don’t remember this happening before.  This could create the opportunity to sell your 2500 square foot home and buy a 2500 square foot new home for a lower price!

Be sure to contact your Group One Sotheby’s International Realty agent to help you guide your decisions in this most unusual market.

A MARKET TURN?

The story of Ada County real estate for the last five years has been consistent: Increased sales (from 11,316 units in 2016 to 12,710 units in 2020) in the face of decreased inventory (starting at 1,784 units at the beginning of 2016 to only 379 units at the end of 2020).

January of this year began with 379 housing units available for sale and ended with 323 units, still consistent with the recent past.  However, unit sales during the month of January decreased by 24% over those of last January, the first decrease in same month sales in many years. 

For the future: Let’s keep an eye on inventory and sales in the next several months to see if this trend continues.

For the past: Ask your Group One Sotheby’s International Realty agent for our 2020 annual housing report to be issued February 15.

What A Year It has Been

And what questions it leaves us.

First, a reminder about what we cover. Our statistics are from our database constructed from MLS statistics, covering single family homes and homes with acreages up to 2 acres of land, townhomes and condominiums. Some services that cover only detached single family homes will have slightly different statistics. We believe it is more informative to include all the main choices that buyers have, especially as housing forms change over time.

The year ended with only 379 such properties on the market, the lowest number we can remember. Inventory at the end of 2019 was 3.3 times more than it was at the end of 2020 and gives us approximately 12 days of available homes.

Despite the low inventory, sales during the month of December were 6% higher than they were in December, 2019. Perhaps even more astounding is that pending contracts were up 21% over the last year. Demand is rising, sales are rising and prices are up. The average and median prices of residential properties sold in 2020 increased by 15% over properties sold in 2019.

Perhaps the most surprising statistic, however, is that the price per square foot for resale properties, at $205, was higher than the price per square foot of new homes, at $201. We don’t remember that ever happening.

The charts below show the relationships between sales, prices and inventory every year since 2002.

A Boise Inversion

Last year at this time we had 320% more inventory than we had in Ada County at the end of this November and yet we had 7% more sales this November than last November and 18% more pending transactions at the end of the month.  That has been a major part of the real estate story for the last half of the year: increased sales despite a drastically lower supply of property available for sale.  We discussed this in our report last month (“The Answer is Velocity”).

Multiple offers are occurring at every price range and buyers have learned to act aggressively and quickly. A market like this requires some strategic thinking. Some sellers are moving into rentals then putting their properties on the market so they can look for replacement properties in a leisurely manner with cash in hand. Whether you are a buyer or a seller, be sure to check in with your Group One Sotheby’s agent to develop a strategy for this market.

The lack of inventory combined with the acceleration of buying activity has pushed prices up 14% over the last 12 months, roughly double the national price increases reflected in the Case-Shiller index.

The charts below show how this year has been different from last year.  The first chart shows pendings and inventory from last year as they occurred in a strong but fairly normal pattern. The second chart shows what has happened this year and, in particular, how pendings and inventory have inverted.

THE ANSWER IS SALES VELOCITY

The question is, “How can we sell more properties than are on the market?”

At the end of September, we had 583 properties on the market in Ada County.  At the end of October, we had 495 properties.  And yet, we had 1,261 sales during October and 2,008 pending contracts at the end of October. 

How can this happen?  The answer is that properties don’t stay on the market very long.  On a day when 40 properties are listed and brought into inventory, 42 properties might have been sold.  Hence, sales velocity.  The cumulative days on market (CDOM on our charts) for existing properties is 21 days – and that includes the time necessary to arrange for an appraisal and process a loan on most properties.

Have you been thinking of selling?

Another telling statistic for this most unusual market is that the average sold price is 99.8% of the average list price – not much of a discount. If you like it, buy it!  The average price of sold properties over the last 12 months is $424,161, a 14% increase over the previous 12 months.  

Consult your Group One Sotheby’s sales professional to develop a strategy for taking advantage of this unique market.

The chart below shows how the price per square foot of existing home sales compared to new home sales has narrowed over recent years, making existing (or resale) properties much more valuable.

Crazy Hot

Last month we discussed 5 anomalies in our current Ada County housing market:

  •     More units sold than we have in inventory
  •     Existing homes sell for about the same price per square foot as new homes
  •     Average time on the market is roughly the amount of time it takes to process a loan
  •     There is only a 15-day supply of resale homes on the market
  •     Pending contracts at the end of August were 181% of the average number of units for sale

At the end of September 2019, there were 1,872 housing units available for sale and 985 sold during the month, a ratio of .53 sold units to available units.  That seemed to make sense.  This September, there were only 583 units available at the end of the month yet 1,288 were sold during the month, a ratio of 2.2 sold to available units.  How can we sell more properties than are available at any point in time?  The answer is that many properties that come on the market are sold within a few days – or a few hours – of being listed.

As a result of this hot market, the average price of a residential property in Ada County (we include single family, single family on acreages, condominiums and town homes in our statistics) has jumped 12.7% in the last year.

The chart below, similar to the chart in our last report, depicts the relationship between sold and available units at the end of September for each of the last 5 years.

MARKET ANOMALIES

ANOMALIES: something that deviates from what is standard, normal or expected.  Below are a few anomalies presented by our current residential real estate market in Ada County:

1. We have more sales than we have inventory.  Put your home on the market and it is likely to be sold very quickly.  Not only is it sold, but you may have a choice of several offers. Newly constructed homes can expect an offer before construction is complete. In fact, many builders want to build only specs, not presales, because with a spec, a builder doesn’t have to hold a buyer’s hands through the many choices the buyer can ponder.

2. Resales, or existing homes, sell for about the same as new construction.  The sales price per square foot for resales over the last 12 months is $191 compared to $196 for new construction, a difference of 2.5%. Historically, we have felt that new homes should sell for about 20% more than existing homes.

3. Average time on market for resale homes is 40 days. That’s about how long it takes for a loan to be processed. We don’t pay attention to average days on market for new homes because most of them are listed before construction is complete.

4. There is only a 15-day supply of resale homes and only 25 days of new homes that are ready for occupancy.

5. Pending contracts at the end of August were 181% of the number of inventory units, a reversal of the normal relationship which was discussed in our last month’s market report.

Consult the chart below to see the relationship of sold properties to available properties at the end of August for the past 5 years.

© Group One Inc. – 2020

Busting Loose

Pending transactions at the end of July were two-and-a-half times the number of residential properties on the market.  The number of pending contracts at the end of the last two months are the highest we’ve seen in at least the last ten years. Homes that show pride of ownership and are well cared for are likely to sell quickly. Multiple offers are flourishing in all price ranges, even over $1 million.

The average price of homes sold in the last year have risen to $405,316, an 11% increase over the last twelve months.

Sellers: Bring on your properties.  The prices are great and the sale should be quick.

Buyers: Act quickly and be prepared to loosen your purse strings.

Check out the graph below to follow July’s pending and inventory statistics for the last ten years.

BACK TO (AB)NORMAL?

June saw a small increase in Ada County closings and an 18% increase in pending contracts compared to the pendings at the end of June, 2019. This increase in new contracts was achieved despite a 40% drop in inventory over the last year.  The demand-to-supply ratio is higher than ever!  Resale inventory has dropped over 50% since June, 2019, and new home inventory has increased 23%.

Despite the increase in new home inventory, as builders rush to answer the need for homes, there are only 26 days of new homes ready for occupancy. Owners of residential property in Ada County are reluctant to put their homes on the market for want of replacement property during a period of low inventory. As a result, there is only a 21 day supply of resale homes. 

Despite the Coronavirus effect on demand, average prices over the last year have increased 10.2%. Unless inventory can increase, which will probably mean new home construction must pick up dramatically, we expect prices to rise more rapidly in the future as people in congested living areas look for more spacious and safer environments.

The chart below shows the number of new contracts at the end of each month over the past year.