Pending Home Sales Report December 2020

Pending Home Sales Report Tallahassee Florida December 2020If you are looking for signs of where the housing market is headed in 2021, you need to read the real estate tea leaves.

Outside of detailed supply and demand numbers, there is no better source of current information than one can gather through a thorough examination of the pending home sales. Pending home sales are real estate listings with buyer contracts in place that are working towards closing.

Today's report is a thorough examination of these new contracts and it concludes with a clear forecast of the coming months in the Tallahassee real estate market.

Unseasonable Demand Continues

Today's report was assembled from data in the Tallahassee MLS on December 21, 2020. On that date, I retrieved all sales that were closed from January 2019 through the first three weeks of December 2020 and sorted them by contract date (not closing date). Additionally, I added all properties that are under contract and sorted the entire group by the date contracts were written.

What this data represents is all contracts written that are either still working towards closing or ones that have closed escrow (thus the agreements were confirmed).

What this data omits is all contracts that were written and subsequently failed to close. Each month when I assemble a Pending Home Sales Report, failed contracts are removed so that we are only left with ones waiting to close or those that successfully closed.

Because of this, there is a high likelihood that the most-recent months account for contracts that WILL NOT close, while most distant months will have very few open contracts remaining as all have either closed or have failed to close by now.

In other words, the past will remain pretty much the same, while the present will adjust as time moves forward.

Our first graph plots each year's sales.

Graph shows the homes sold and under-contract in December of 2020

The blue lines in this graph report the number of contracts written in 2019 by month that are either still pending or have already closed. The gray lines report the same for 2020.

Currently, the number of contracts written through three weeks of December has grown to 233 more than those written all last year, a change of nearly 5% over last year's contracts and we still have the final ten days of December to go!

Normally, this is where I warn you that a healthy percentage of these will not close, so the 30% growth of new contracts in November and 27% growth in December will decline significantly in the future as the failed contracts fall out.

But remember, we still have ten days remaining in December, so yes some contracts will fail, but we'll also have new contracts written. This means that year-over-year new contracts in November and December will very likely blow away the number written during the same two months of last year.

This confirms that we are getting the unseasonably strong 4th quarter that we forecast when the market slowed in the 2nd quarter, as buyers who opted out of the market back then are racing back to take advantage of historic low mortgage interest rates.

Homebuilders Are Stepping Up Production

Through all of our inventory reports over the past few years, I have pointed out that we need more homes. We need existing sellers to put their homes on the market, but more importantly, we need builders to deliver additional homes to compensate for the lack of new construction over the past 6 years.

This next graph segments all closed and pending contracts by new versus existing home sales in order to see the increase in builder activity that we are finally seeing in the market

Graph of new versus existing pending home sales December 2020

The blue bars measure existing home contracts, both pending and closed, by the date the contracts were written while the red measures the same for new home construction.

The red triangles report the percentage of contracts written each month that was new construction while the red line shows the one-year trend of the new construction share of the market.

Last year, a little over 9% of the contracts written were for new homes and we've seen that grow to just over 11% in 2020. As of right now, 103 more new construction homes have gone under contract in 2020 versus the same time in 2019, something the market has desperately needed (and still needs significantly more).

The Average Home Price Is Rising Fast

Using the same data, I calculated the average home price in 2020 each month and compared it with the same months in 2019.

Graph shows the price of homes sold and under-contract December 2020

On average in 2020, buyers have been spending 10% more than they were in 2019. This is skewed a bit by a surge of hi-end activity that occurred in September and October, but December prices were up by more than 9% over last December.

We have to remember that this is an interest rate fueled buying frenzy, and it will slow considerably when interest rates rise. The high-end could go nearly dormant if interest rates rise substantially, and that would slow the average home price growth considerably.

One thing to note though is that the MLS does not reveal the contract price for pending home sales. That means for homes that have closed, we're using the actual sales price, but for those still under contract, we are using the asking price.

This means that when all the homes tracked in this report close, it's likely we'll see the difference between the two years tighten up a little (as most closed prices will likely be at or lower than most asking prices).

Unreal Real Estate Appreciation

This next graph tracks the average home value in 2020 each month and compares it with the same months in 2019.

Graph shows the value of homes sold and under-contract December 2020

The graph shows that the appreciation rate each month has ranged from as high as 16.2% to as low as 5%, with year over year value change in December reporting values 14% higher than December of 2019.

Overall, the appreciation rate in 2020 is close to 9.5%, which is about three times the average we've seen over the past thirty years. With inventory remaining at historic lows, this could very well go much higher.

As reported in numerous other market updates, we continue to see low inventory levels in most areas and price ranges below $500K, and this is the biggest contributor to the accelerated appreciation rate.

Now is a great time to sell a home, as buyers want to take advantage of historic low mortgage interest rates before they go away.

Buyer Activity Remains Very Strong

This graph identifies when the current pending and closed contracts were written, with closed contracts shown in blue and pending contracts shown in red. We do this to evaluate the health of the pipeline.

Graph shows the status of homes sold and under-contract December 2020

By pipeline, I mean the pending home sales and how they are distributed. Since the typical contract closes in 30 to 45 days, we have to be concerned with the number of contracts that appear in our report that are older than 45 days. Currently, about 1 in 6 contracts is older than 45 days.

In fact, the oldest pending home sale goes back to November of 2015, which is likely an MLS maintenance issue that needs to be removed. There are a handful of others that are more than a year old that are likely bogus as well.

Currently, there are 499 Tallahassee homes for sale in the MLS that are under contract with buyers (pending contracts). This represents a decline of more than 16% since our last Pending Home Sales Report revealed 598 homes under contract.

This is the normal seasonal slowdown that we expect during the holidays, though the market remains far more active in December than we expect to see this time of year.

Even though the market has entered the year-end slowdown period, the 335 contracts written thus far in December is much higher than we would see during a "normal" year.

Remember, this graph shows closed and pending contracts by the date they were written, and there were 76 contracts that were written in December that have already closed, and another 259 waiting to close.

This means that 335 contracts have been written in December and we still have another ten days before December concludes. Christmas and New Year's Eve will likely slow our pace for a few days, but December is poised to be much stronger than December of last year.

It's important to understand what this means. Yes, demand has fallen about 16% from last month, but demand always falls in December. Demand is still very strong and the limited inventory of homes for sale means that relative demand (demand relative to the current supply of homes) has not changed from the scorching pace begun a few months ago.

Buyers are wanting to take advantage of low mortgage interest rates, so now is the best time to sell a home that I have seen in my 30 years selling homes in Tallahassee.

Year Over Year Home Sales Comparisons

The year-over-year home sales graph below has been set up in a different fashion than all previous graphs in this report.

Note that this one shows all homes sold segmented by the date of closing, while the past graphs were assembled based upon contract dates. I include this in the pending home sales report as a bridge to our other market report videos that focus on closed sales dates.

Year over year home sales surge higher in December 2020

Four of the past five months have posted gains over the same months in 2019. Through the date of this report, the market is down just 1.3% for the year, but that includes a partial December in 2020 with a full December in 2019. As I have stated in previous reports, I am confident that the number of homes sold and closed in 2020 will surpass the number sold in 2019.

Annual home sales in Tallahassee

The graph above shows annual home sales from 2002 through 2020, with this year's sales through December 21, 2020. With 10 days remaining in the year, we need about 75 more sales to post a higher number than in 2019.

This would make 2020, pandemic and all, the fourth-best year on record, trailing only 2004 through 2006 for the number of homes sold.

While the COVID pandemic continues to impact our way of life, its impact on home sales has been neutralized by low mortgage interest rates.

Reluctant home sellers need to take note. Current conditions are the best I've ever seen for getting top dollar for your home while also selling it on a predictable timeline.

I am confident that the seller's market conditions will continue for the foreseeable future, but I do believe two market forces will eventually reduce the advantage that current home sellers enjoy.

Number 1, mortgage interest rates are going to rise. Who knows when, but certainly they won't stay this low forever. When that happens, demand at the top of the market will erode significantly and decline throughout the lower price ranges.

Number 2, sellers who were waiting for the pandemic to pass will eventually stream into the market. Again, I'm not concerned about the market flipping to a buyer's market below $400K, but the supply and demand dynamic will be modified and sellers won't be as strong as are today's sellers.

If you know you want to move, you should strongly consider doing so immediately while both of these forces are working to your advantage.

Regardless of what you decide, we'll be here to keep you up to date on the listings and home sales in the Tallahassee real estate market.

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