Pending Home Sales Report Reveals Interesting Market Behavior
It's time for our monthly review of pending home sales in Tallahassee, and I think you will agree that the pandemic is having a peculiar effect on the housing market.
If we simply saw fewer sales, I would consider that an expected outcome during these trying times. But take a look at our findings, including my video explanation, and you'll understand a new opportunity for buyers today.
May 2020 Pending Home Sales Report Video
New Real Estate Contracts Written By Month
The following graph was assembled from data in the Tallahassee MLS on May 17, 2020. On that date, I retrieved all sales that were closed from January 2019 through mid-May and sorted them by contract date (not closing date). Additionally, I added all pending contracts by the date they were written.
What this data represents is all contracts written that are either still pending agreements or ones that have closed escrow (thus the agreements were confirmed). What this data DOES NOT include is contracts that were written and subsequently failed to close.
The blue lines in the graph above reports 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. Amazingly, there are more contracts for April in 2020 than there were in April of 2019, and the same is true for the periods of Jan-Apr year-over-year.
As reported in our pending home sales report in April, the number of new contracts continues to be higher in 2020 than what occurred a year ago. The red line reports the percentage change each month as compared to the same month the year prior.
So even with a global pandemic, stay-at-home orders, and social distancing, buyers have written more contracts in 2020 than they did in 2019. Since we are only in the middle of May, it is too early to tell how this month will fare, but right now May of 2020 looks to be very similar to May of 2019.
Stick around to the end of the report, I'll point out the interesting market behavior that represents an opportunity that buyers might be missing.
Buyers Are Spending More
Using the same data, I calculated the average home price in 2020 each month and compared it with the same months in 2019.
Buyers are clearly spending more this year than they did last year. 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 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 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).
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Homes Are Appreciating Twice As Fast As Normal
The next graph tracks the average home value in 2020 each month and compares it with the same months in 2019.
The graph shows that the appreciation rate each month has been as high as 8.5% and as low as 6.5%. When we look back over the past thirty years, we find the average appreciation rate is 3.2%, less than 1/2 of what is occurring right now!
Just as I mentioned about prices though, this is comparing asking values with sold values for homes under contract, so we might see April and May's results drop a little. Nevertheless, homes are going up in value fast!
Homes Under Contract Appear Normal
The next two graphs reveal the interesting market behavior that I mentioned at the beginning of this post. The information in the graph shows the current status of all homes sold or under contract by the date the contracts were written.
Currently, there are 550 Tallahassee homes for sale in the MLS that are under contract with buyers (pending contracts). Of those, 250 contracts were written in May (45%), 216 were written in April (39%), and the rest were written as far back as March of 2018! Simply put, 85% of the contracts were written in the past 45 days, and this appears normal.
What is not normal is what we see in the graph below!
When 1 + 1 Does Not Equal 2
Up to this point, we've demonstrated that prices and values are rising, and the number of contracts is higher in 2020 than what occurred in 2019 (which was a very strong year for housing).
So take a look at the following graph which shows how closed home sales are doing in 2020 versus the same time period in 2020.
Home sales plummeted in April, and they appear to be doing the same in May (though we're only 1/2 way through the month so it's too early to call).
How is it that contracts are up, yet closings are down?
As a reminder, these reports are a snapshot in time, the day that I produce them. While closings are rigid and their dates will not change, the homes under contract could very well change. Suppose in today's report there is a home under-contract that terminates tomorrow. A few days later, it goes under contract with a new buyer. In next month's report, it will remain in the "under contract" group, though it will be measured as a May contract and the number of contracts in April will be reduced by one!
Contracts Are Falling Through At A Higher Rate Since COVID-19
My belief is that we are seeing the impact of the pandemic (for the months of April and May). Many contracts that were written failed to close. It is normal for about 20% to 25% of the contracts written to fall apart (home condition, financing, changing circumstances, etc.). I believe the rate is much higher for the past two months, though we're not seeing it with contracts at our company.
And herein lies the opportunity for buyers. Inventory is low and more than 1/3rd of all listings are under contract. Normally, we encourage buyers to focus on those that do not have a sale pending, but a high failure rate on contracts might very well be a reason to go ahead and submit a back-up offer on a home already under contract.
At a very minimum, if you find a home that is already under contract, have your real estate buyer's agent look into any that you find interesting. We can often find out how solid the buyer and seller are in their agreement with a phone call to the listing agent.
Remember, with inventory so lean, you have to look for opportunities anywhere you can find them. Homes that are under contract are likely being ignored by most buyers, so maybe you'll find your dream home hidden amongst them!
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