Last month, we made the observation that the term “holding pattern” accurately described the state of buyers in the market. This is because it appears that buyers are exercising patience and waiting for a compelling reason to take action. Those buyers who have an immediate need to move are doing so, but those with more flexibility in their timing seem to be waiting for one of three catalysts: a decrease in interest rates, positive gains in the stock market, or the pending sale of a comparable home, which triggers a fear of missing out.
In May, we witnessed an uptick in activity, prompting us to delve into the data to determine which of these factors is driving the movement we are currently observing.
Median Home Price and Cash Purchases
The big headline this month was that the median home price increased nearly 10% last month and now sits at $752,000. While this is still below the peak of just over $800,000 in spring of 2022, it is also well above the lows we experienced this February. So with every headline talking of economic slowdown, recession, inflation, and high interest rates, why did this happen? Well, there are a few reasons. First, please keep in mind that we are working with smaller than normal data sets. In May, there were 251 homes that sold in Bend. When you look over years past (excluding some abnormalities with the pandemic), the normal number of sales in Bend is closer to 360. That means there were roughly 43% fewer sales this May compared to the norm. Given that, if there are more transactions taking place on the upper or lower end of the market, it can move the median much easier. That is precisely what happened in May.
With interest rates still at relative highs and hovering near 7%, and with the stock market now up on the year, people turned to cash purchases in May. Normally we see about 25% of purchases in cash with the remaining 75% financed. However this past month, 41% of the purchases were done in cash. As is often the case, cash purchases seem to be more prevalent on the upper end of the market. If we look at the number of sales above $1M, we see that 53 homes sold in May, compared to 37 in April. That is a 43% jump in the number of luxury homes in just one month. When you factor that much activity into one end of the market, and combine that with a smaller than normal amount of sales, you see a significant shift up in the median home price. It is yet another reminder that the headline or statistic is often not exactly what it appears on the surface.
Days on Market
This section remains very consistent with what we said last month. Right now the median days on market is about 9, while the average days on market is 40. Why the discrepancy? Well as we have been telling our clients, this market really is the tale of two markets. Right now, 42% of pending homes had an accepted offer in 7 days, and 68% of those were actually pending in less than 4 days. At the same time, about 10% of the homes that are pending right now took more than 3 months to sell and a few of them have been on the market for almost a year.
Inventory, Pending Sales and New Listings
So, sales have ticked up, the median has ticked up, and days on market have ticked down. That seems like it would be an indication that the market is picking up steam and perhaps choices would be dwindling for buyers. However, that is not necessarily the case. As a refresher, inventory is often quoted in terms of months of supply, and this just states the number of months it would take to sell out of the current listings if sales activity remains consistent and no new homes come on the market. In May there were 2.4 months of supply compared to 2.1 months in April. This means that there are more options for buyers; and although we are still very much in a seller’s market (balanced is usually 5-6 months of inventory), the dynamic is shifting ever so slightly. If sales ticked up in May and people were buying them quicker than the month prior, why is this happening?
The answer is that the number of homes that are coming on the market is outpacing the number of homes that are going under contract. The data shows that the number of pending sales went up about 7% between April and May. However, in that same time, the number of new listings went up about 32%. This means that we went from pending sales outpacing new listings in January by 6% to about 45% in the other direction in May. This is not all that uncommon as new listings always pick up throughout the spring months, but it will be interesting to see if those drop off as they normally do throughout the summer and how buyer demand continues to fluctuate. As mentioned above, currently cash buyers are active in larger than normal numbers. However, if interest rates tick down in the coming months, we can expect that financed buyers will jump back in and that could drive buyer demand higher once again.
Average Sale to List Price
Given the high number of homes selling almost immediately when they come to market, it should be no surprise that the average sale price is about 99.5% of list price. The median sale to list percentage is actually back at 100% so this should tell us that although some people are able to negotiate some discounts on overpriced listings, the midpoint and most of the sales are taking place right around list price. However, for those homes that have been on the market for more than 100 days, the average sale to original list price is closer to 94%. Keep in mind that this is referring to the sale compared to the original list price, not necessarily the last list price. The stats show that after price reductions, homes on the market for over 100 days still sell at 98% of their last list price.
Some other points to consider…
Mortgage Changes: These have bounced around a bit, but remain steady to slightly higher over the last month. Over the course of the last year, this is probably the biggest influencer of market activity. Here is the latest chart of current interest rates.
National Price Projections: These remain steady with experts estimating a flat year or two with appreciation picking up and heading back to normal levels of 3-5% in 2025-2027. There are some very real regional differences, so we tend to focus on our local numbers more than national projections.
Inflation: This monthly data is what helps dictate the course of action of the Federal Reserve Bank and what they do with the interbank lending rates (not mortgage rates). This chart shows that inflation is coming back down and well off its highs, but still well short of the Fed’s target of 2%.
We hope you find this information valuable and that it helps you towards your ultimate real estate goals. If you have any questions about this month’s content or would like to dive a little deeper into the data, please reach out to your Ladd Group broker. If you don’t have one, you can reach me at email@example.com or on my cell at 541-280-2132.
There are also several ways to reach the team, so please let us know how we can help.
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