The Over/Under (aka Red vs Green).
If you follow the San Carlos Week in Review series on this site, you know that each week I post all the homes that sold in San Carlos the previous week, along with the relationship between the sales price and the original list price. I even color-code the difference; if a home sells at or above its original list price, it’s highlighted in green — if it sells below list, it’s in red. For a town where it’s almost expected that homes will sell above the list price, we have definitely grown more accustomed to seeing lots of green in the weekly update.
But have you noticed in the past few months that the report has been dominated by red ink? I noticed it too, so I decided to do a little digging into the numbers. I took the recent sales over the past 4 months and compared them to the sales figures for the first half of this year. What I found was definitely an eye opener…
To compare the two periods; over the most recent 4 months, 83 single-family homes sold in all of San Carlos. In the first half of 2010 114 sold. Care to guess what percentage of those homes that sold were able to fetch a price at or above the list price (i.e. green)? The answer will surprise you:
|% of Homes Sold At/Above List
||Past 4 Months|
|List Price Over $1M||39%||21%|
|List Price Below $1M
What do these numbers mean? In the first half of this year, fewer than half of the homes that sold in San Carlos (46%) sold below their original list price. But during the past four months, a full 2/3 of the homes had to drop below their list price in order to sell. That’s a big difference in just a short time.
How much did prices drop below list? Take a look at the following chart:
Two things to notice in this chart:
- First, the blue line is a ratio of the sold price to the original list price. Notice the downward trend over the past 4 months. Homes that sold during this period on average sold at 2-6% below the list price.
- The second thing to notice is the average days on the market — it has been trending upward since July.
In a nutshell, it appears homes are fetching less and they’re taking longer to sell. Hmmmm… let’s dig a little deeper.
Listing Prices on the Decline.
One possible explanation for the sudden disparity between list price and sold price is that homeowners (and Realtors) may have gotten a little too optimistic in the second half of the year, and perhaps priced their listings a bit too high? That’s certainly plausible, given the strength the market has shown in the first half of the year. But take a look at this graphic:
The dark green line shows that the average list price for a San Carlos home actually declined throughout the year, and over the last 4 months was nearly $140,000 less than it was at the beginning of the year. So scratch the idea of list prices climbing. What about price per square foot? No good news there, either. They are at the lowest point since the beginning of the year…
Summary: The What’s and Why’s.
What’s going on here? Well, the “what” is pretty well spelled out in the numbers above: Homes are clearly selling for less in San Carlos over the past few months, and they’re taking longer to sell on average. This may come as a surprise to many, since we seemed to be on a bit of a rebound earlier in the year. In fact, many assumed we had reached the bottom of the market late in 2009 and were climbing out of it. But that’s simply not the case, as you can see above.
The “why” is not so easy. Interest rates are still at historical lows, and consumer confidence appears to be on the upswing. Even major employers are cautiously optimistic on hiring for next year. So one would expect to see more bullish reports in the real estate market here? One bit of good news is that significantly more homes will have sold in 2010 than in 2009 in San Carlos, thus reversing a two-year slide. So homes are indeed selling… just not for as much as they used to.
It’s important for sellers to recognize this “correction” phase that the San Carlos market is going through right now, because it will absolutely change the way you price your home if you plan on selling in the next few months.
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