LOW SUPPLY -and- HIGH DEMAND: Residential Real Estate 2017 Review
Similar to 2016, 2017 was very much a “price adjusting” year. The Valley experienced residential market sales growth, despite restricted & historically low housing inventory. High buyer confidence & demand elevated sales prices, and dramatically decreased days on market. It was a great year to be a seller, and a struggle to be a buyer. A more detailed, localized look below…
INCREASE IN SALES TRANSACTIONS & VOLUME
The Greater Augusta Area experienced yet another increase in year-over-year sales when compared to last year. 2017 closed 1613 transactions; a 6.8% increase from 2016’s number, (1511 sales). This is the second consecutive year of sales growth. (2016 experienced a similar increase of 6% when compared to 2015.) 2017’s Total Market Volume displays this growth in sales and increase in Sales Price; reflecting a 13% increase from last year.
The highest number of sales occurred during 2Q, (475 total transactions.); May was the highest selling month with 184 sales; and as expected, January & February tied for the slowest, with 85 sales each. (Yet 1Q 2017 still noted a solid 9% increase over 1Q 2016). Aside from the natural recycling of households upsizing & downsizing in the market, we have noticed a large segment of buying clientele from our neighboring larger, faster growing cities. They are starting to discover the easy commute, slower-paced lifestyle, and more affordable real estate this area has to offer. In all areas, its been a challenge being a buyer looking for a home in the $200,000 and under price range. (More on the that topic below…)
So, the big story of low housing inventory continued in 2017. The decrease in supply began in the Fall of 2015, became historic in February 2016 and continued to drop…
Low inventory means not-a-thang if you don’t have home buyers…Fortunately, we DO have buyers, as seen in the past two years of sales growth…(I mean, who wouldn’t want to live here!?) Locally, we started to feel the crunch in August 2016, when our absorption rate* dropped into a “seller’s market”, which continued for the entirety of 2017.The absorption rate can very useful when calculating more specific perimeters. 2017’s Price by the Slice displays the majority of homes sold were within the $100,000 – $250,000 price range, (representing 65% of the market.) The year ended with this price point having an absorption rate of 3.4 months; basically, there are more buyers than available homes for purchase. (Versus the higher price slice of $350,000 – $400,000, which had an absorption of 8.5 months.)
INCREASE IN MEDIAN & AVERAGE SALES PRICE
The chart below illustrates 2017’s monthly average sales prices compared to previous years. We ended 2016 on a strong note, and 2017 continued the pattern into summer, with a slight dip in 4Q. Even with the 4Q average price decrease, this year we experienced an overall 6% increase in Average Sales Price, and a 3% increase in Median Sales Price.
DAYS ON MARKET
Days on Market for properties dropped significantly over the course of the year; Average DOM dropped from 99 Days in 2016 to 77 Days in 2017; Median days on market decreased to 36 days! (A normal market is considered to be around 90 DOM).
Much of the stale inventory, with their higher Days on Market from last year, were flushed, and replaced with aggressively priced properties. Property sellers & listing agents alike have been testing buyers and their pain threshold when it comes to pricing. No one wants to leave money on the table…appropriate pricing and quick adjustments to the current market have been key in keeping DOM down. With that said, Homebuyers, (AND their agents), were, (still are), scrambling to get into desirable available inventory as soon as possible, making competitive offers in “highest & best” scenarios.
(The struggle is REAL ya’ll…I have actually left my house in such a rush, accidentally still wearing my slippers, in the middle of boiling water for dinner, to meet clients at a newly listed house this past year. Truth.)
Here’s another way of looking at Days on Market, and how it compares to most recent years…
INCREASE IN LAND SALES
So, how are buyers reacting to lack of existing housing?…They decided to BUILD. Check out the chart below, s’il vous plais…
Even with the continued rise of lumber & building supply pricing, the National Association of Home Builders reported that 46 states experienced a growth in single-family permits. [The National Association of Home Builders is a great resource for more information. Here is a link to their informative blog, NAHB Eye on Housing.]
INTEREST RATES…What happened and what’s in the future?
The first 10 months of 2017, mortgage rates remained low by historical standards (Exhibit 7). Can you imagine paying 18%!!!! I have no clue how my parents did it. Anyhoo…Mortgage rates increased over 0.5 percentage points for the 30-year fixed mortgage, right after the U.S. general election in November of 2016. They remained above four percent through the first quarter of 2017. Then drifted down in March, the 30-year fixed mortgage has remained under four percent since July (Exhibit 8). Low mortgage rates are the one factor helping to support homebuyer affordability.
What’s in the future? Most likely the rates will increase over the next 2 years, but at a much more modest speed than in the past, remaining “borrower-friendly” low. I’ll leave it to the experts, the Freddie Mac ECONOMIC & HOUSING RESEARCH GROUP to provide a more thorough and entertaining explanation…
We’re in an era of historically low mortgage interest rates and the expectation is that interest rates have nowhere to go but up. But how quickly will rates increase and how high will they go? If they do rise, what will be the effects on home buyers, homeowners wishing to refinance, mortgage lenders, home builders, and real estate agents? To answer these questions, it’s helpful to review periods when interest rates spiked and analyze the effects, with the hopes of understanding what might happen in the coming years. It’s the next best thing to a crystal ball. CLICK HERE to read Freddie Mac’s INSIGHT article: Nowhere to go but up? How increasing mortgage rates could affect housing.
**Looking for a broader point-of-view? I got ya covered. Here’s a link to VIRGINIA HOME SALES REPORT – 4Q & 2017 Year End Report.
Happy House Hunting – Katherine
* This report was prepared by and for the use of Katherine McNicholas, Westhills Ltd. REALTORS. It is not to be copied in whole or in part without explicit permission of author.*
* All data based on information from the Greater Augusta Association of REALTORS®, Inc. or Multiple Listing Service for the period 01.1.17 through 12.31.17. All information is believed to be accurate, but cannot be guaranteed.*