Pending Home Sales Report October 2020 (SURPRISE!)
Welcome to the October 2020 Pending Home Sales Report for the Tallahassee real estate market.
September and October have seen unseasonably strong buyer activity, and today I will attempt to use the information from this report to forecast the remaining time we have in this crazy 2020 year.
Today's report is a thorough examination of new contracts in the Tallahassee real estate market.
Real Estate Crystal Ball
Demand Remains High
The following graph was assembled from data in the Tallahassee MLS on October 25, 2020. On that date, I retrieved all sales that were closed from January 2019 through the first three weeks of October 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 the graph above 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-quarters of October has grown to 233 more than those written through all of October last year, a change of more than 6% over last year's contracts and we still have the final week of October 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 from this data.
Normally, this is where I warn you that a healthy percentage of these will not close, so the 37% growth of new contracts in October will decline significantly in the future as the failed contracts fall out.
But remember, we still have a week to go in October, so yes some contracts will fail, but we'll also have new contracts written. This means that year-over-year new contracts in October will very likely be the strongest of all months recorded thus far.
New Versus Existing Pending Home Sales
In a previous pending home sales video, a viewer asked me if new construction was having an impact on pending home sales in Tallahassee from older dates. The thinking was that most of the older pending contracts (those written more than 4 months ago), might be homes that are being built.
A quick look at the numbers revealed that was not really the case. It turns out that 17 of the 47 current pending home sales with contract dates prior to July were new construction (roughly 1/3rd), which is double the ratio of the 15% overall that new homes represent in the pending home sales pipeline, but certainly not "most" of the older pending contracts.
While looking this up though, it made me wonder if I could show the increase in builder activity that we are finally seeing in the market. This next graph segments all closed and pending contracts by new versus existing home sales.
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 more than 11% in 2020. As of right now, 101 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 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.
Does anything you see in this graph jump right out at you?
Perhaps you noticed the red-dashed line exploding into outer space?
We've seen a strong surge of high-end homebuyers in the past 45 days, and it has had a huge impact on the average contract amount.
On top of this, all buyers are spending more this year than they did last year, so it's not just the top of the market exploding. For the ten months of the year, home sales price growth has ranged from as much as 22.2% more in October to just 3.4% more in April.
Year to date, buyers have been spending 10% more in 2020 than they did through October 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 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 October reporting the highest of the year at 14.3% higher than October of 2019.
Think about what this generally means for homeowners. If you owned a home worth $300,000 in October 2019, today that home is worth roughly $343,000. This level of growth is not being enjoyed at the highest levels in our market, but for most areas and price ranges below $500K, it certainly is true.
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, and what we're seeing is a return to a normally spaced pipeline of home sales.
Currently, there are 645 Tallahassee homes for sale in the MLS that are under contract with buyers (pending contracts). This represents a growth of 5.8% since our last Pending Home Sales Report revealed 610 homes under contract.
While this might not seem like a big deal, but consider this. That last report was published in August, traditionally a very active month for home sales.
This report was produced in late October, traditionally, one of the least active months of the year. Can you see that the growth in new contracts of any amount from August to October is highly unusual?
When we examine the current pipeline of pending home sales, we see that 84% of them were written in the past 80 days, so roughly 1 in 6 contracts is fairly old. I'm guessing a good number of these are just poor maintenance by the MLS. In fact, the oldest existing contract is approaching 1,800 days old (almost 5 years), so perhaps it's time for data scrubbing at the Realtor office.
One thing that does catch my eye is the total number of contracts already written in October.
Remember, this graph shows closed and pending contracts by the date they were written, and there were 85 contracts that were written in October that have closed, and another 371 waiting to close.
This means that 456 contracts have been written in October and we still have another week yet to go before October concludes. If the pace continues, October will be the top month on this graph for new contracts.
It's important to understand what this means. There are more buyers active in the market now than in any month in the past two years! And this is October!
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 is a bit perplexing. Take a quick peek at the previous graph and you'll see that June and July contracts were very strong. But when we look at the graph of closings below, arranged by date closed, closed home sales declined in August.
The third quarter of 2020 produced 7% more home sales than the third quarter of 2019, reducing the decline for the year. Through September, the market is down just 2.3% for the year, and it appears as if 2020 could still outperform 2019.
In fact, after gazing into my crystal ball, I will boldly forecast growth in 2020 when compared to 2019. When all is said and done, I believe 2020, pandemic and all, will be the fourth most-active year for home sales, trailing only the years from 2004 through 2006.
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 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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