Your Home: Following up on 2016 predictions

January 2nd, 2017

Well, here we are at the end of another banner post-recession year in real estate. It has been a wild ride this year with historically low inventory coupled with unbridled buyer demand. Home values, in most areas, are currently higher than the peak (2006) that was reached prior to the recession.

2016 has been so fast-paced that it has been challenging to predict where things might be headed. Therefore, I thought it would be fun to re-visit some of our columns from earlier this year to see how we did.

Let’s begin with our column from March 4, 2016 entitled “Are today’s home values sustainable?” In it, we discussed the fact that home appreciation in Kansas City for 2015 was 6.1 percent. A sustainable level of appreciation is considered to be between 4 and 6 percent annually. Appreciation higher than that is considered unsustainable and will require a market correction to prevent buyers from being priced out of the market.

So where are values as of today? In the Shawnee Mission School District, median home prices are up 6.9 percent as of the end of November when compared to values at the end of November 2015. Now let’s look at the Blue Valley School District where median home prices are up 13.9 percent during that same time period. Both markets are clearly out of the sustainable range, though Blue Valley has certainly seen much more rapid appreciation.

But are the values sustainable? That depends on what happens to inventory after the first of the year. Currently the supply of homes for sale has nearly doubled since its lowest point this year in March in the BVSD. Much of that increase is being caused by the rapid increase in home prices. If inventory stays up, then inevitably home prices will have to come down in order for a seller to compete. The SMSD has seen almost exactly the same trend. Inventory has nearly doubled there as well. Therefore, we will know soon if today’s prices have a limited shelf life.

Now, let’s jump to May 20, 2016, when our headline was “60 percent chance of rate hike in June or July.” Wah, wah! That one did not come true. The Fed did not increase the Federal Funds rate in June or July. Instead they waited until about two weeks ago. The inarguable strengthening of the economy gave the Fed all the justification that they needed to increase the benchmark rate for only the second time in a decade. Interestingly, the market seemed to have already built in the rate increase because post-election rates have been rising steadily. I cannot tell you how thrilled I am to finally not be crying wolf about interest rates. No one every expected rates to stay so low for so long. But those days are now gone. Now our job is to wait and see if the Fed follows the current plan of three more increases in 2017. And the question becomes, how much of an increase? With inflation on the horizon, unemployment at 4.6 percent, and 73 months of consecutive job growth, the sky is the limit!

On May 6, 2016 I wrote, “Shift is here?” I know, I know. I have been talking about a shift a lot lately. And that is because it is a big deal because it affects both buyers and sellers. I can talk numbers all day long, and the numbers do support that we are seeing signs of a market shift or correction from such a strong seller’s market to more of a balanced market. But much of my talk of the shift is being driven by buyer sentiment. For the first time post-recession, we are seeing buyers making low ball offers. We are seeing buyers walk away from a purchase if they don’t get what they want when it comes to inspection related repairs. We are seeing feedback from showings that seem very “nit picky.” These are the first signs of a market shift. I say that because buyers are saying enough is enough. They are tired of paying top market value for a home and having no leverage during the process as well. If this sentiment continues, then we will see a correction in the market. And as rates continue to go up, buyers will question the price they are paying for a home because the cost to borrow is higher.

I have never claimed to have a real estate crystal ball. However, I do my best to keep our readers ahead of the market trends and will continue to do so in the new year. I trust that our column brings value to you, and please know that we welcome your thoughts and suggestions as to how we can bring even more value to our readers.

Happy New Year to you and yours and as always, thank you for reading our column and for supporting the Shawnee Mission Post.

Your Home: Tips on the holiday real estate market

December 28th, 2016

Even though the temps should approach the 50s this weekend, it may be a great time to tap into the holiday market. Yes, there is a holiday market in the real estate world. It may not have the frenzied feel of Black Friday, but it can still be a great time to get a good value.

Right now in our area, the inventory levels are still showing a seller’s market. However, we have seen the numbers of contracts received on homes decline and those inventory numbers are up from just a few short months ago. On our own listings, we are seeing homes that would have sold day one with multiple offers in the summer now taking a week or so to sell. They are still selling for top dollar, however, buyers are now enjoying a more calm home buying environment where they can make a calculated decision instead of a rushed one.

So maybe it is time to call your favorite Realtor, run through the Starbucks line and hit the streets. Home prices have been on the rise for the last three years and affordability is slipping away, especially with interest rates going up.

Clearly the message to potential home buyers is that you should add a home to your holiday list of things to get. Don’t mentally check out until spring. You don’t want to search for a home when you have a ton of competition (other buyers). You need to buy now. Additionally, and most importantly, interest rates will be higher next year. And not at the end of next year, at the beginning. I know, I know…I don’t have a real estate crystal ball. But the feds position is clearly to raise the benchmark federal funds rate three more times in 2017.

Sellers out there, if you were going to buy a lottery ticket to win $1 million, would you rather buy a ticket if your odds were one in a million or one in fifty? Of course, one in fifty right? Isn’t selling your home in the winter kind of like the one in fifty lottery ticket? As a seller today, you not only get to compete in the market with little competition, you also get to benefit from the fact that typically people don’t go look at houses when it is 20 degrees outside just for fun. They are out because they need or desire to buy a home. You see, mother nature filters out the looky loos for you in the winter. Therefore, if you are going to keep your home show ready for each and every buyer, wouldn’t you rather each and every buyer be highly motivated to buy? Of course you would.

I thought it might be valuable to offer some tips out there for you sellers during the holiday season. Here you go:

  • 1. Make sure that your photos in MLS are shot on a sunny day. You want to be sure to show the full potential and beauty of the home and most of the other homes in MLS will look grey and gloomy. This will help you stand out on line.
  • 2. Create a virtual video tour of the home. In areas where the weather can get be especially stormy, offering potential buyers the opportunity to first see the home from the comfort of their own computer is helpful.
  • 3. Be sure to keep driveways, walkways, and sidewalks clean during inclimate weather. You don’t want any potential buyers to slip and fall on their way inside the home. And you want them to feel welcomed.
  • 4. Keep the house warm. A warmer inside temperature will keep potential buyers inside longer and allow themselves to feel more at home.
  • 5. Keep window curtains and blinds open to let in as much light as possible.
  • 6. Create an atmosphere. Put on some holiday music. Leave out some sweet treats or even some warm apple cider. Pull out all the stops. Remember that a home purchase is very emotional for most people. Bring back some great holiday feelings for your potential buyer by creating a holiday setting and hopefully next holiday season they will be celebrating in your current home and you will be celebrating in your new home.

Your Home: How today’s higher rates will affect you

December 19th, 2016

Well, today’s historically low interest rates are going, going, almost gone. Post election, interest rates had already jumped up a bit. Add to that Wednesday’s announcement from the Fed that they were raising their benchmark (federal funds) rate for only the second time in a decade and the combination equals higher interest rates for a borrower. The last time the fed increased the federal funds rate was December of last year.

Interest rates rising is not all bad, right? If you have money in a savings account you may actually be able to make a little money on it now. Also, the Fed has justified their recent move to raise the benchmark rate by acknowledging the strength of the overall US economy. Unemployment is at 4.6 percent as of the end of November which is the lowest unemployment that we have seen since 2007. Although we are not seeing the 2 percent inflation target that the Fed has set yet, indications are that the economy is headed in that direction. So overall this is good news for America.

The biggest news from Wednesday’s announcement was the change in the Fed’s plan to raise rates three times in 2017 versus the previous plan of only two rate increases. This may cause rates to increase at a slightly higher rate than was first anticipated by the markets.

So how will the higher rates affect you? That depends. Are you thinking of selling a home, or buying a home, or both?

Let’s start with selling.

Higher rates=lower home values. Please know that I have over-simplified this statement for dramatic purposes, however, there is a lot of truth to this statement as well. As the cost of borrowing money goes up, historically, values can adjust down to offset the additional cost to the buyer. Just how strongly values respond to higher interest rates is also dependent upon supply and demand at the time. If you have been following my recent columns, you then know inventory has been on the rise since the summer months. Therefore, I will be watching median sales prices very closely to see how they react in the coming days to higher interest rates

Higher rates=smaller buyer pool. Not only do higher interest rates reduce a potential home buyer’s budget, but in some cases the higher costs of borrowing can take someone out of the market altogether. It is all about dollars and cents. As rates continue to rise, some buyers will be forced out of the market to purchase a home. This trend tends to start at the first-time home buyer price range and then has a domino effect moving up from starter home, to second home, and so on. If starter homes have a challenge selling, then those sellers cannot by the move up home. Then that move-up homeowner cannot purchase their next home. Well, you get the picture.

Now to the buyers out there.

Higher rates=less home for the same price. That’s right. The rule of thumb is that for every 1 percent that your mortgage interest rate increases, you must purchase a home for 10 percent less in price to keep the same monthly mortgage payment. So if you are currently looking at $350,000 homes with an interest rate of 4 percent to stay within your budget and rates go up to 5 percent, you would then need to look at no more than a $315,000 home to keep your payment around the same amount. That $35,000 drop in purchase price can make a big difference in the quality, size, or location of the home that you would like to purchase.

Higher rates=less affordability. Housing affordability has been at an all-time high for years now due to historically low interest rates. To put that number in perspective, historically it has taken 21.6 percent of an American family’s household income to pay their home mortgage each month. In 2014, that number was 15.2 percent and then it dropped slightly to 15 percent in 2015. Essentially, low interest rates have given the American family an additional 6 percent of their household income to invest elsewhere. As rates go up, that luxury will slowly slip away.

Overall, the Fed’s move this week is an endorsement of the American economy. And rising rates are a natural part of our economic cycle. I spoke the the Post’s own Mike Miles with Fountain Mortgage this week and he felt that the market will settle down a bit in the coming weeks. However, he did say that the days of a 30 year mortgage at less than a 4 percent interest rate are a thing of the past. At lease for the foreseeable future.

If you have real estate plans for the new year, call or email us today to discuss how there recent changes in the market may affect your timeline. If a purchase is on the horizon for 2017, I would certainly recommend that you reach out to a trusted lender, such as Mike Miles from Fountain Mortgage, sooner rather than later.

Your Home: Timing the spring market

December 12th, 2016

As the cold weather sets in and Thanksgiving has passed, potential home sellers seem to be postponing their upcoming move until 2017. And in most cases, they are planning on spring when the market is hot and the weather begins to warm. You know, April or May when things begin to bloom, and buyers hit the streets.

That is the best time to sell a home, right?

Wrong.

The best time to sell a home is when you have the least amount of competition. The month on the calendar has nothing to do with it. Yes, our market follows a seasonal cycle. However, the Spring market in 2011 was awful. Even with the flowers blooming and birds singing, sellers were begging to get their homes sold. The strongest market for a seller is all about supply and demand. A seller with the goal of netting the highest sales price that the market will bear should sell when supply (the number of homes for sale) is at its lowest point compared to the current demand.

In 2016, that market was in March. And I would suggest that it really kicked in to high gear as early as February, but for today’s purposes, the fact remains that March was when the highest percentage of active homes for sale were going under contract in all of 2016. Timing this sweet spot in the market, which is not easy, can have a dramatic effect on the ultimate sales price of a home. For example, in February 2016, 41.8 percent of the active homes (in the Shawnee Mission School District) were going under contract. By March, that number increased by 18.7 percent (from February 1) to 49.6 percent of the homes receiving and accepting offers. Higher demand+lower supply= higher sales prices.

So let’s pretend for a moment that one of your goals for 2017 is to sell your current home and you would like to net as much equity from the sale as possible. Using March 1 as a target date for going under contract, let’s back into the calendar and establish when the selling process should begin for you and your family.

If a seller intends to be under contract by March 1, 2017, then they should consider the following:

Days on market. Currently Taylor-Made Team listings are on the market an average of eight days before receiving an offer. Conservatively, let’s use 14 days to be safe. If your home will take 14 days to receive and accept an offer, then that means you would need to be on the market no later than February 15, 2017, to be under contract by March 1, 2017.

Conditioning and staging. We have found that the average seller takes two weeks to prepare their home for sale. Prior to going live on the market, our sellers complete a staging consultation and a pre-inspection to ensure a quick sale for top dollar. The length of the staging report and the findings from the pre-inspection may dictate if the prep time is two weeks or a month. Either way, our goal is to give our sellers as much prep time as possible to still hit their target “go live” date in MLS. Therefore, if your home takes the average two weeks to condition, then that means that you would need to begin the conditioning and staging no later than February 1, 2017.

In a nutshell, if your goal is to sell for top dollar in 2017, then we should meet between now and the end of January to put together a plan to get you the top dollar that you deserve. My experience has taught me that most sellers would like as much prep time as possible, so I am currently meeting with sellers this month to give them a jump start on their new year’s home prep.

If you would like meet in the near future to discuss your plans for a move in 2017, feel free to email or call me directly at 913-825-7540.

Your Home: Median home prices up in November

December 6th, 2016

Median home prices have seen a slow and steady decline since the peak value point of $212,000 at the end of July. That is until November. As of the end of October, the median home price for the Shawnee Mission area was at $197,000. November’s numbers, fresh off the presses, show that although demand is down, median home prices have seen an uptick. The latest numbers reveal that the current median home price as of the end of November is $205,000 which is up 4.1 percent from the previous month.

How is this possible with lessening demand? Most likely, there have been some homes selling in higher price ranges, which has brought the median number up. Nevertheless, it is good news for sellers out there that the market is fighting to hold on to today’s record high values.

The real test for how resilient today’s values truly are will come when we see a noticeable increase in mortgage interest rates. The only reason today’s values, which in many cases are higher than the peak values in 2006, have been tolerated by buyers out there is because the cost of money (interest rate) has remained so low.

The Fed’s next meeting to discuss raising the federal funds rate is scheduled for December 13-14, 2016. US News and World Reports recently wrote that “Fed Chair Janet Yellen and several of her colleagues have indicated as much in recent days, with Yellen saying during congressional testimony last week that an increase to the central bank’s benchmark interest rate “could well become appropriate relatively soon.” It is stated in the article that the fed spoke of the domestic economy saying it has “expanded at a faster pace in the third quarter than in the first half of the year,” including a labor market that had “continued to strengthen” and inflation that managed to “increase somewhat since earlier this year.”

A second contributing factor to pricing will be the current pattern of lessening demand. As you can see from the graph, the percentage of homes each month that are going under contract has been dropping steadily since the peak in April of 51.3 percent. The absorption rate for November ended at 18.3 percent, which compared to November 2015 is down 35.6 percent. To give that number some life, of the 774 homes that were for sale at the end of the month in the Shawnee Mission School District footprint, only 142 of them went under contract. The absorption rate in December of 2015 was higher at 23.5 percent.

As a potential seller, if the amount of equity that you receive is important to you, time is of the essence. Although we have seen a temporary increase in the median sales price, it is most likely just that…temporary. Call us or email us today to discuss how we can create a strategy to ensure that you maximize your equity potential.

MedianPrice---SM-Post714Market-714

Your Home: A market to be thankful for!

November 28th, 2016

As the turkey hangover wears off and and I mentally plan for my Thanksgiving left-over dinner, I cannot help but reflect on what has been a tremendous year for real estate in Kansas City. As an agent who worked through the recession, it is pretty easy for me to be thankful for almost any market. Yet this year has been better than most. How so you ask? Here are a few examples.

Sellers win, and win again, and then win some more. In 2016, sellers have been the king of the castle in more ways than one. Not only have sellers enjoyed sitting back and watching the offers roll in, they have also enjoyed selling in a day or two for well over list price. And when it came to inspection repairs, in most cases sellers were able to hold a firm line on what they were willing to address because if the buyer walked, they had another buyer waiting in the wings. Tumultuous inspection negotiations during the sale was almost like a pack of sharks smelling blood in the water. The other interested buyers, whose offers were not chosen, were swimming around just waiting for the sale to fall apart.

Historically low rates. For yet another year, interest rates have stayed low. I mean really low. In most cases, less than 4%. That is almost free money in the scheme of things. Low rates have almost become the norm (but not for long). The gift of low rates and high affordability are usually not appreciated until rates go up. Which is on the horizon. CBS news recently reported that a rate hike is likely at the December fed meeting. Low interest rates have allowed values to sky rocket because the low cost of money has lessened the sting of higher home prices. When prices and rates go up, buyers will be able to tell a significant difference. But for now, buyers and sellers alike are thankful for low interest rates.

Sellers are no longer under water. According to Keller Williams Realty International, less than 8% of homeowners are under water or in a negative equity position today. To put this number in perspective, in the fourth quarter of 2011, 25.2% of homeowners nationally were in a negative equity position. I remember those years, and about 1 out of 4 sellers that hired us were writing a check at the closing table to sell their home. I am extremely thankful that our clients today, in most cases, are thrilled at their equity position. It is amazing the difference that five years can make.

Lastly, I am extremely thankful to our readers. It warms my heart when someone shares with me that they read our column on a regular basis and value it as a real estate resource in our community. My goal in the years to come is to continue to provide the community with pertinent real estate news and to earn the opportunity to be your local real estate economist and consultant of choice.

Here’s to you and yours for a joyous holiday season!

Your Home: Fireplace safety tips

November 21st, 2016

There is something magical about the combination of cool fall air and the scent of a wood burning fireplace. Soon enough, neighborhood fireplaces will be in full blaze.

Properly maintained fireplaces can be the crowning jewel of the room during the holiday season. You just cannot forget the “properly maintained” part. A fireplace is no different than your furnace or air conditioning in the sense that it should be serviced each and every year. One big difference is that you service your HVAC to ensure efficient operation. You service your fireplace to ensure efficient operation and to prevent a house fire.

On several occasions I have been present at a chimney inspection when it is determined that there has been a flue fire at some point. On every occasion the homeowner had no idea that there had been a flue fire. Here in lies the danger of a chimney. In many cases, a homeowner does not find out they have a dangerous situation in their chimney until it is too late.

A best practice would be to have your chimney inspected (a level 2 inspection requiring a special camera) and cleaned each and every year. Yes, that includes you gas log people as well. There is a common misconception that only people who burn wood are at risk by using their fireplaces. This is completely untrue. As with any natural gas heating appliance, the concern is proper venting of the production of carbon monoxide. If your chimney flue is dirty or damaged or just not operating efficiently, it could allow carbon monoxide to come down the chimney and into your home. Additionally, the condensation that results from the combustible air cooling during or after a gas fire is highly acidic. Its corrosive power can eat a chimney flue inside out.

Now back to the wood burners. I grew up with a father who I swear waited for the first sign of cooler weather to justify putting in a huge order for firewood. He and my older brother, Jason, would feed our fireplace as if they were feeding the engine of a locomotive. I loved it! As a child, there is nothing like the crack and pop of real wood in a fireplace. (Except when those little embers pop out and surprise you!)

Wood burning fireplaces are awesome and they require the highest level of attention. Creosote, a tar-like substance often found in wood burning fireplace chimney flues, is a bi-product of burning wood. Creosote can itself catch fire and cause a flue fire. Creosote build up can also affect the proper venting of the chimney flue. Here is a great “What you need to know when burning wood” list that I found on the Chimney Safety Institute of America’s website.

  • 1. Get an annual chimney check. Have chimneys inspected annually, and cleaned as necessary, by a qualified professional chimney service technician. This reduces the risk of fires and carbon monoxide poisonings due to creosote buildup or obstructions in the chimneys.
  • 2. Keep it clear. Keep tree branches and leaves at least 15 feet away from the top of the chimney.
  • 3. Install a chimney cap to keep debris and animals out of the chimney.
  • 4. Choose the right fuel. For burning firewood in wood stoves or fireplaces, choose wellseasoned wood that has been split for a minimum of six months – one year and stored in a covered and elevated location. Never burn Christmas trees or treated wood in your fireplace or wood stove.
  • 5. Build it right. Place firewood or firelogs at the rear of the fireplace on a supporting grate. To start the fire, use kindling or a commercial firelighter. Never use flammable liquids.
  • 6. Keep the hearth area clear. Combustible material too close to the fireplace, or to a wood stove, could easily catch fire. Keep furniture at least 36” away from the hearth.
  • 7. Use a fireplace screen. Use metal mesh or a screen in front of the fireplace to catch flying sparks that could ignite or burn holes in the carpet or flooring.
  • 8. Install smoke and carbon monoxide detectors. Place detectors throughout the house and check batteries in the spring and fall. When you change your clocks for Daylight Savings Time, remember to check your batteries.
  • 9. Never leave a fire unattended. Before turning in for the evening, be sure that the fire is fully extinguished. Supervise children and pets closely around wood stoves and fireplaces.
  • 10. The CSIA recommends annual inspections performed by CSIA Certified Chimney Sweeps. These chimney sweeps have earned the industry’s most respected credential by passing an intensive examination based on fire codes, clearances and standards for the construction and maintenance of chimney and venting systems. The National Fire Protection Association also recommends that all chimneys are inspected on an annual basis.

Here’s to many safe years of stockings hung by the chimney with care and s’mores galore!

Your Home: Market shift is leading to price adjustments. Here’s what you can do.

November 14th, 2016

As our real estate market continues to shift out of a seller’s market, price adjustments are becoming more prevalent. The number of homes going under contract is down more than 30 percent in most areas compared to the previous 90 day period. And with such a significant drop in demand, prices must get more competitive.

A shifting market not only puts a spotlight on homes that are over-priced, it also places a magnifying glass on conditional concerns (deferred maintenance or disrepair) and/or a lack of updating. This can be very frustrating to a seller. Buyers will find themselves using things about the home that the seller cannot affect, like room sizes or location of the home, to take it off of their list of potential homes.

As inventory grows, the feedback from potential buyers will get pickier and pickier. And as days on market accumulate, the seller’s anxiety level grows as well because they know that just a few short months ago everything seemed to be selling in a day. And now their beloved home has been rejected time and time again with no logical explanation that they can see.

Well, the explanation is simply supply and demand. When the supply of homes goes up and demand goes down, the real competition begins. You cannot depend on the market to do the heavy lifting any longer. Selling a home requires a solid strategy and a price that is in-line with condition while placing you ahead of your competition. Pricing from 90 days ago is no longer relevant. You have to price in the now!

So is there a logic to a price adjustment? The answer is a resounding yes.

The only way to test a list price is to introduce it to the open market and see if a buyer responds. If a buyer does not respond by bringing an offer, here are a few things to keep in mind.

  • Find a new buyer pool. The goal of a price adjustment is to get in front of a new buyer pool. If you have been on the market for a period of time and have seen a relative number of showings with no offers, then the goal of your price adjustment is to reposition your home so that a new pool of buyers is now made aware of it. To do so typically requires a 3 to 5 percent price reduction. I know this sounds pretty dramatic, but that is what the market requires.
  • Avoid the stair-step method. Honestly, you really only want to adjust the price of your home once. Once the original list price is tested and an offer is not received, then it is the job of the Realtor to identify a price that will cause the home to sell and get there FAST! Just rip the band-aid off and get the home price in-line with the market so you can get it sold. The stair step method is when a seller drops the price (in most cases 2-3 percent at most) about every two weeks or a month.  This method looks like a free-fall to the potential buyer pool and, in my opinion, is simply telling buyers out there that “we don’t know where to price this home so we are just guessing.” When buyers see this, they tend to wait to see how low a home’s price might go, or they may choose to low-ball a seller because they can sense the panic.
  • Don’t own the price. Oftentimes, sellers can be very disappointed when they find that they must adjust the list price of their home. In many cases, it is because they have crunched the numbers and they are counting on the equity amount from the original list price. Or it can be that they saw their neighbor or their friend sell for more earlier in the year and it is a blow to the ego that now they cannot accomplish the same feat. Well, my advice is don’t own the price. Again, we can only test the price once we go live on the market and until then the price is simply a theory based on recent evidence. Once the market has rejected a seller’s price, then the seller must dust themselves off and ask an honest question: “What is the price that will make my home the best home for the buck when both size and condition are taken into account?” In most markets right now, only 2 to 3 percent of active homes for sale are going under contract each week. The seller’s new price must ensure that their home will be the next one to sell. Otherwise, if the new price does not reposition the home, it will only help to sell other homes that are more competitive.

The shift in the market has brought with it a spike in the number of homes that have canceled or expired from the MLS. If your home has recently canceled or expired and you would like to see a fresh approach to selling your home, please reach out to us today. Or if you will be selling in the near future and want to make sure that you stay ahead of the market instead of chasing it, we would be happy to meet with you and share with you our time-tested plan.

Your Home: Residents seeing and feeling the housing downturn

November 10th, 2016

Just this week I was speaking with a new client who lives in Corinth Hills. We were discussing the market when he made the comment that he and his wife had noticed the market has shifted. I asked him why he would say that, and he said they had noticed homes that were once selling in a day — or not even hitting the market — were now taking much longer to sell. One of the first signs of a shifting market that the consumer notices is always that homes are taking longer to sell and they begin to notice the number of for sale signs has increased.

We started discussing the downturn in the market a few months ago and have continued to monitor the shift heading into fall. Several weeks ago I wrote about market downturn indicators and how the Shawnee Mission area was already seeing 3 of the 5 indicators. Well, as of this week, we are now at 5 out of 5.

A market downturn is the period of time between a real estate market peak and the market hitting a bottom point. This bottom point is the lowest point in a market correction. An example of a market correction is when median home prices increase rapidly to the point that many buyers are priced out of the market and decide to get out. Therefore, the buyer pool population drops lessening the demand for housing. The drop in demand causes home prices to drop because inventory will often increase during this correction. More competition equals more competitive pricing. If demand drops off enough, we can see the market shift into a strong buyer’s market where sellers are doing everything they can just to get an offer.

If you look at the slide below, you can see how the market transitions from one market to the next. If you look at the indicators to the right, you will see that all five downturn indicators are currently being met in the Shawnee Mission area. Please notice that some of the indications are slight, for example, average days on market have gone up from 31 days to 33 days. And the number of homes for sale has gone from 633 to 652. Although these changes are only slight, the one to notice is the drop in sales from an average of 90 homes per week 91-180 days ago to only 62 homes per week in the last 90 days. That is a 32 percent drop in sales which is significant.

CyclesI have learned through the years that shifts in real estate happen gradually and then suddenly. The suddenly is the drop in sales, and it has taken many a Realtor’s breath away. Especially the ones who are not prepared for a shift in the market.

In the last two weeks, we have been hired by two Prairie Village families who have been on the market for at least 60 days and have not successfully sold yet. This is the first time that I have listed a previously listed home, let alone two, in a couple of years. In both cases, it seemed that the prior strategy was to let the seller’s market do the heavy lifting. Well, unfortunately, since July, those days are gone. Strategic pricing and conditioning is the only way to get a home sold in today’s market.

I will offer one more example of “gradually and then suddenly” in our market. The graph below shows the months of supply of housing inventory for the last 12 months. As a reminder, months of supply means how many months it would take for the current homes for sale to go under contract based on the current rate of sales per month. If you look at the comparison of last October to this October, you will see that the months of supply is up 49.9 percent comparatively. Now let’s notice what has been happening since April 2016. The supply has been slowing going up. Not dramatically, but rather gradually. That is until October when, BAM, the inventory doubled!

TimePeriodPrice-1

This current trend will absolutely have an effect on the 2017 spring market. If you are planning to sell in 2017 and would like to put together a plan to keep you ahead of the market, please reach out to us today. We are business planning for 2017 as we speak because we know that it is our team that will do the heavy lifting in the new year, not the market.

Your Home: Are sellers making concessions?

October 31st, 2016

Are sellers making concessions? And by concessions I am not talking about providing snacks for potential buyers. Concessions in this column are the ones that sellers can make towards a buyer when a home sale is being negotiated. In the strong sellers market that we have been in for the last three years, sellers have rarely had to make concessions. And in some cases they are still few and far between. But the times they are a changing and we are now seeing seller concessions entering the picture again.

So as the market continues to shift out of the strong seller’s market, here are a few concessions that sellers may have to consider when selling their home.

Price concessions. Over the last three years, in many areas, sellers have come to see the list price as a starting point. Due to the high demand, sellers have become accustomed to receiving multiple offers on their homes and pricing concessions have been a thing of the past. But that is changing. Price adjustments are becoming more prevalent as sellers do their best to stay in line with fair market value. When an offer is received it is very important to remember (as a seller) that it is not about where you start out in the negotiations. It is about where you end up. Therefore, if you receive a “low ball” offer on your home, don’t take it personally. Just counter and see where you end up. It is also important to know which homes have sold in your neighborhood in the last 90 days or so and for what percentage of original list price did they sell. If the average home in your neighborhood is now selling for 96 percent of original list price it may be unreasonable for you to expect full list price. Especially if you have been on the market for a while.

Closing cost concessions. It has been over three years since I have had a seller pay any of their buyer’s closing costs as part of the sale. That is until the last month. This could be good news for many buyers out there who would love to purchase a home yet do not have the down payment plus all of their closing costs as well to make a purchase. Again, during the strong seller’s market, if a buyer needed closing costs paid either the seller simply said “no” or they added the closing costs to the sales price and made the buyer finance their own costs. The latter is not a bad solution, however, it is not really a concession in that example. At this point we are not seeing sellers pay all of a buyer’s closing costs which could average $4,000-$5,000 depending on the purchase price. We are seeing sellers pay closer to half of the total closing costs at this time. But that could change as the market continues to shift.

Repair concessions. Same song, third verse. Due to the low inventory, buyers have not had the opportunity to expect too much over the last three years when it came to inspection repairs. Many of our listings have sold in “as-is” condition over the last few years. In other cases, the sellers were still able to hold a pretty hard line when it came to repairs that were uncovered during the inspection process. As the market changes and inventory goes up, buyers will be able ask more of the seller when it comes to inspection related repairs. I have said before that in a buyer’s market, it truly is a “price war and a beauty contest” all at the same time. It also becomes a “condition contest”. When buyers have options, they also reserve the right to walk away from a contract and move on to another home if a seller is not willing to address realistic repair requests. So what is realistic? My stance is that inspections were designed to uncover material defects of the home that neither buyer nor seller were aware of prior to contract. In addition, the goal of the inspection process is not to make the home new again. The goal is to identify safety issues, health concerns, or structural issues that should be addressed. Home ownership is wonderful and it comes with responsibilities. The inspection period should not be a time when a buyer gives the seller a laundry list of “honey dos”, if you will, in order for the buyer to shirk said responsibilities.

If you are curious about other affects that the shifting market will have on buyers and sellers in the upcoming days, please feel free to email me with your questions. I am here to help.