By Chad Taylor
April is always an interesting month in the real estate world these days. It is certainly a month to watch closely. Why is that you ask? The reason we watch April closely is because the last few years, buyer demand for housing has peaked early in the year. As early as February in some areas of town. And by the time we get to April, we begin to get an idea of where housing demand is headed. April is also a month when housing inventory tends to hit the market like a wave on the beach. Slowly and then suddenly.
April 2018 has a story to tell, so let’s get to it.
If you look at the graph above, you can see that the housing supply is on the rise in the Shawnee Mission School District. The number of homes for sale has been increasing since February, which is a pretty normal seasonal cycle. And the number of homes for sale is pretty even with April 2017. It is up just 2.5% from last April at 915 homes for sale to April 2018 with 938 homes for sale.
As with previous columns, the story is the blue bars, or homes to go under contract. In April 2017, 463 homes in the SMSD went under contract. Fast forward a year and 347 homes went under contract last month. That is a drop of 25.1%. And, if you notice, a pretty sharp drop from March 2018. One last observation- historically the number of homes to go under contract will drop from April through the rest of the year. The number of homes to go under contract in April 2018 is lower than what we saw in August 2017. That begs the question, “Where will we be by August 2018?”
Which leads me to my next thought. Regardless of market conditions, my advice is always to price in-line with fair market value to achieve the best results as a seller. When the word on the street is that the market is hot and everything is selling in a day, I know that is hard for a seller to accept some times, but it is the truth. We built our business through the recession, so our pricing has been tested in all kinds of markets and pricing based on fair market value is always the best strategy.
That being said, there is only one market condition when a seller can price above fair market value and still achieve an offer. That one condition is when demand is on the rise. More specifically, it is when the sales absorption rate is on the rise. When the percentage of homes for sale that go under contract each month is getting higher as the months progress, then and only then can the strategy of pricing high actually work. The reason it can work is because demand is intensifying which causes more competition for homes and in most cases, buyers will pay more than what “fair market value” says a home is worth.
Big asterisk here! This is not that time of the season!
If you look at the absorption graph here you can see that sales absorption peaked in March at 47.7% when almost 1 in 2 homes went under contract that month. Now look at April. The absorption rate has dropped to 37%. Again, we did not see absorption that low in 2017 until August. This means that pricing like it was February or March of this year can be a recipe for disaster. We are already seeing more price adjustments recently than we have seen in quite a while which is another indicator of softening demand.
The long and short of it is that pricing “to the now” is crucial when overall demand is dropping. As always, each price range and neighborhood can perform as its own micro-market, so if you would like specific coaching about your home’s value, please call us or email us today to discuss.
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