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Starting 2018 with 14 Percent Fewer Homes for Sale than Last Year

Starting with the basic ARMLS numbers for January 1, 2018 and comparing them with January 1, 2017 for all areas & types:

  • Active Listings (excluding UCB): 16,697 versus 19,397 last year - down 13.9% - and down 9.4% from 18,422 last month

  • Active Listings (including UCB): 19,606 versus 22,313 last year - down 12.1% - and down 11.0% compared with 22,019 last month

  • Pending Listings: 4,728 versus 4,885 last year - down 4.3% - and down 16.2% from 5,579 last month

  • Under Contract Listings (including Pending, CCBS & UCB): 7,583 versus 7,801 last year - down 2.8% - and down 17.4% from 9,176 last month

  • Monthly Sales: 7,187 versus 7,133 last year - up 0.8% - but down 0.4% from 7,216 last month

  • Monthly Average Sales Price per Sq. Ft.: $156.44 versus $144.68 last year - up 8.1% - and up 1.0% from $154.91 last month

  • Monthly Median Sales Price: $245,000 versus $225,000 last year - up 8.9% - and up 0.04% from $244,900 last month

Bidding wars will continue to be the norm for the lower half of the market and are likely to get even more intense.

Demand is nothing special. December's sales were barely able to record an increase over December 2016 and listings under contract are down almost 3% compared with last year. To be fair, supply is so low below $200,000 that the usual number of sales below this figure is impossible to achieve. If there were more supply then sales would increase. However the trend is strongly in the opposite direction, so I would not hold my breath.

The annual sales rate stood at 95,883 on January 1, up from 89,885 a year earlier. However, it had reached 96,339 on December 2 and is now struggling to make any advance. Any growth in this number is probably dependent on more supply coming from somewhere.

The current imbalance between very low supply and normal demand generates substantial upward pressure on pricing. The average $/SF is up over 8% from a year ago and the monthly median sales price is up almost 9%. These are strong appreciation numbers given that inflation remains tame, but last year had a smaller imbalance than we have now. The Cromford® Market Index stood at 155.4 on January 1, 2018 up from 144.5 12 months ago. Both supply and demand are lower now than they were this time last year, but supply has dropped much further than demand. So unless there is a major shift in direction, it makes sense to expect prices to rise faster in 2018 than they did in 2017. In theory this should lead to further cuts in demand.

There is another factor at play in 2018. Mortgage rates have been on a distinct upward path for the last 4 months, especially the 15 year and ARM rates which have moved up faster than the 30 year rate. I anticipate that homeowners will increasingly prefer the terms of the loan they already have to the terms they could get on a new loan. This is likely to reduce both supply and demand but be beneficial to companies that specialize in modernization and refurbishing properties.

All the comments above apply exclusively to the market below $1 million which accounts for 98% of units sold. However the 2% of the market over $1 million benefits from having 12% of the active listings - six times it's fair share. Consequently buyers have a much easier time if they are planning to spend $1 million or more and sellers are rarely in control of the negotiations. This is why you see some spectacular price cuts in the high-end market and a sales pricing trend that is flat to slightly lower. We should emphasize that this applies to the re-sale market and not the new home market, where pricing has a trajectory all of its own.

December saw a significant change from the rest of 2017 - supply dropped faster than expected and it is fairly unusual for December sales to come in lower than November, especially as December had one more working day than November. Unless this was a fluke (unlikely) then 2018 is going to be a interesting year. While owners and sellers can celebrate the rising prices, many players in the market should be concerned that a downturn in transaction volumes is becoming a distinct possibility. Fewer homes to buy could mean fewer homes sold and therefore impact the volumes at lenders, title companies as well as brokers. Competition for business is likely to intensify.


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