Pending Home Sales Report November 2020
Welcome to the November 2020 Pending Home Sales Report for the Tallahassee real estate market.
September through November have seen unseasonably strong buyer activity, resurrecting pandemic-slowed 2020 home sales to possibly post gains over last year. Who would have thought this possible when the pandemic came to town in early March?
Today's report is a thorough examination of new contracts in the Tallahassee real estate market.
Pending Home Sales Report
Demand For More Homes Grows
The following graph was assembled from data in the Tallahassee MLS on November 22, 2020. On that date, I retrieved all sales that were closed from January 2019 through the first three weeks of November 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.
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 November has grown to 235 more than those written through all of November last year, a change of nearly 6% over last year's contracts and we still have the final week of November to go!
As a reminder for returning visitors or a note to new friends, the pending home sales report only looks at current and closed contracts, thus contracts that fall apart were removed (and will be removed) from this data.
Normally, this is where I warn you that a healthy percentage of these will not close, so the 47% growth of new contracts in October and 24% growth in November will decline significantly in the future as the failed contracts fall out.
But remember, we still have a week to go in November, so yes some contracts will fail, but we'll also have new contracts written. This means that year-over-year new contracts in October and November will very likely blow away the number written during the same two months of last year.
It appears as if we are getting the strong 4th quarter that we forecast several months ago, as buyers who opted out of the market in the 2nd quarter are racing back to take advantage of historic low mortgage interest rates.
New Versus Existing Pending Home Sales
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.
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 show the percentage of contracts written each month that was new construction and the red line is the one-year trend of that percentage.
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, 105 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).
Buyers Are Spending More Money
Using the same data, I calculated the average home price in 2020 each month and compared it with the same months in 2019.
In last month's report, we highlighted the fact that there was a surge of hi-end activity that occurred in September and October. This surge has cooled and we've seen the market return to normal. Buyers are spending about 7% more in November than they were in November 2019.
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.
Year to date, buyers have been spending 10% more in 2020 than they did through November 2019.
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 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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Home Values Are Exploding
The next graph in our report 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 ranged from as high as 14.3% to as low as 4.5%, with year over year value change in November reporting values more than 8.5% higher than November of 2019.
Overall, the appreciation rate in 2020 is close to 9.25%, which is about three times the average we've seen over the past thirty years. With inventory remaining at historical 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 historically low mortgage interest rates before they go away.
Buyer Activity Remains Very Strong
The next graph identifies when the current pending and closed contracts were written, with closed contracts shown in blue and pending contracts shown in red.
Currently, there are 598 Tallahassee homes for sale in the MLS that are under contract with buyers (pending contracts). This represents a decline of 7% since our last Pending Home Sales Report revealed 645 homes under contract.
This is the first real sign that the market is slowing in the past three months, though it is still far more active in November than we expect to see this time of year.
When we examine the current pipeline of pending home sales, we see that 93% of them were written in the past 80 days, so roughly 1 in 14 contracts is fairly old. The old contracts have been reduced greatly since our last report, so maybe some of the agents have been cleaning up bad data in the MLS.
Even though the market has entered the year-end slowdown period, the 386 written thus far in November is much higher than we would see in a "normal" year.
Remember, this graph shows closed and pending contracts by the date they were written, and there were 66 contracts that were written in November that have already closed, and another 320 waiting to close.
This means that 386 contracts have been written in November and we still have another week yet to go before November concludes. Thanksgiving will likely slow our pace for a few days, but November is poised to be much stronger than November of last year.
It's important to understand what this means. Yes, demand has fallen about 7% from last month, but it 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.
Three of the past four months have posted gains over the same months in 2019. Through the date of this report, the market is down just 1.8% for the year, but that includes a partial November in 2020 with a full November in 2019. Because of this, it appears as if 2020 could still outperform 2019.
In my last pending home sales report, I forecast that this would indeed happen. I've seen nothing in the past thirty days that would change my forecast, so I'm still expecting 2020 to end up as the fourth-strongest year on record for closed home sales.
The graph above shows annual home sales from 2002 through 2020, with this year's sales through November 22, 2020. With roughly 40 days remaining in the year, we need about 425 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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