In many parts of the United States, areas are experiencing a seller’s market: low inventory, high prices, lots of buyers= multiple offers. This kind of market is THE best time for a seller to sell. Why? Because home sellers can make the most money from selling, as well as have the most leverage for the terms of the contract with the buyer. Many people dream of buying a home but have been waiting for these home prices to come down so they can afford a home. How long can this keep up and what signs can we look for to know when this market will shift? How will we know when we’ve peaked?
Watch the inventory
As long as inventory (aka: the number of homes that are for sale at any time) remains low, then demand will remain high. Basic US economics tells us, high demand means higher prices. How can you tell if inventory is low? Your local experienced realtor will tell you how many homes were for sale at any given time during a buyer’s market. In our Chico market, we went from about 300 homes on the market at any given time in 2012 to 50 homes on the market at any given time today. That’s low. We call it the “absorption rate”. How many months would it take for us to sell out of all the homes if we froze the MLS and didn’t take any more listings? Our market is at about a month. A “normal” market, nationally, is considered 6 months absorption rate. Keep an eye on the number of homes for sale and when you notice a marked increase, it may be an indication this market will shift.
Watch the average days on market
Any pro Realtor can tell you what the current average days on market is for a homes in their market. What this means is, how many days does it take, on average, for a home to go on the market, receive and negotiate offers and accept one? In the Chico market it is 11 days. About five years ago the average was more like 45 days. Yes, averages take into account those outliers that skew the numbers, but watching the average days on market is still a very good indication as to where the market is heading. Once they start creeping up into three and four weeks we will know that in the Chico market that we are in the tides of change and sellers may have missed the peak time to sell. Watching the average days on market is a good way to know when this market will shift.
Watch the mortgage interest rates
All these buyers that are actively house shopping these days will still be able to afford the house they want as long as mortgage rates remain low. But if the interest rates go up enough then they can no longer afford the monthly payment for the house they want. They will either have to look elsewhere in a cheaper market to buy, stop shopping and wait for interest rates to go back down, or wait for housing prices to go down. Mortgage rates have stayed under 5% since 2011 (except for a short time in 2018), according to Freddie Mac. We have been under 4% since the second half of 2019, according to Freddie Mac…until recently. Obviously, we don’t have a crystal ball, but as long as the rates stay in these familiar territories of low 4’s and 3’s, this shouldn’t affect housing prices. If interest rates climb a quarter percent here and there, housing prices will begin to level off and then, eventually, begin to adjust downward. Downward prices mean the market made a shift.
If you are waiting to sell until the market peaks, use these indicators to help. All three must work in conjunction with each other. You can’t just watch one. Consulting with your local realtor in the area of the home you are wanting to sell will be a valuable asset to you. If you live in the Chico, CA area, reach out to us and we can answer your questions about our local market! Click here to send us a message that you want to talk!
This article was written by Kim Jacobi of the Jacobi Team of Century 21 Select Real Estate, Inc in Chico, CA.