The Effects of an Extreme Seller’s Market
We are well into the last two months of 2021 and by all accounts, it’s been a year to remember. The Central Iowa real estate market is predicted to sell 18,000 homes this year. At the height of the home buying season this past May, only 1,600 homes were for sale.
To give perspective, one year ago May, there were 3,200 homes on the market. How did we go from losing half of our for-sale inventory during the past year and not have a seriously compromised real estate market?
We all know that since the Covid-19 pandemic hit, the value of owning a home became paramount. Both from the monetary worth of home ownership AND the beneficial worth by having that safe place to call home. This month we will look at where the market was most active, including the number of sales as well as pricing and days on market.
New Purchase Strategies Employed by Homebuyers In 2021
Unless you were living under a rock, you most probably heard about some of the crazy actions going on with listings this past summer. At the height of the market activity, it was common to see a home hit the market in the morning and be under contract by that same afternoon. Some Realtors arranged for extended showing periods to allow more homebuyers through the front door over the period of a couple of days.
That would often result in multiple offers at or above the listed price. Something fairly new to our market was the use of escalation clauses. This buying strategy allowed a homebuyer to include contract language that automatically increased their offer over competing offers up to a specified maximum purchase price. Coupled with record low mortgage interest rates, this was the catalyst for homeowners that allowed them to sell their homes well above the listing price. It also proved to be a double-edged sword however as many potential homeowners decided to stay put because of the fear of not being able to find the next home with all the buyer competition.
Most Active Areas in the Metro
Of the Single-Family Resale homes that sold at or above list price during the first 10 months of this year, the area called Des Moines Northwest (think Beaverdale & Merle Hay neighborhoods) recorded 587 sales with Ankeny following close behind at 579, then rounding out the top 5 were Des Moines Northeast, West Des Moines, and Urbandale.
Metro Days on Market
At the height of the buying frenzy, Days on Market could have been described as hours in many cases. Year-to-date numbers showed an average of 6 days on the market for homes selling at or above list price compared to 40 days market time for homes selling below the listed price. This is certainly where the argument could be made for proper pricing in such an active market.
Pricing
This category is a little harder to analyze because different areas of the market each drive a different price point. Cumming, Iowa for example is almost always going to lead the way in average sale price just because it offers homes with larger lots and a more rural setting and is highly driven by new construction. The data used in this month’s analytics are based primarily off of Single-Family Resale properties and I have purposely removed new construction and condo/townhomes from the mix.
The Covid pandemic allowed so many people to work from home. And with less commuting required and social distancing so important, the perceived value of homes rose. As a result, the farther away you got from the core of the city of Des Moines, the higher the average sale prices were regardless of whether a home sold above or below list price.
Areas like Polk City with its close proximity to Saylorville Lake and Clive with its great walking nature trails offered a way for people to social distance yet be able to enjoy outdoor activities. In fact, except for Des Moines’ Northwest area the bulk of the actual Des Moines areas came in at the lowest average sale price in both categories of homes sold above and homes sold below list price. People were willing and able to pay higher home prices to live in the suburbs surrounding Des Moines.
Months of Inventory
In simplest of terms, Months of Inventory describes how long it would take to sell all the homes that are currently for sale assuming no new properties enter the market. For years, the standard of measure to describe a real estate market is by labeling it as a Seller’s Market (less than 4 months inventory), a Balanced Market (between 4–6 months inventory) and a Buyer’s Market (more than 6 months inventory).
At the most recent real estate conference this past month held by the National Association of Realtors, NAR’s chief economist, Dr Lawrence Yun was asked whether the current definition of Months of Inventory still applied with such high sustained buyer activity. He said that the defining brackets are much lower in today’s real estate market and that the current Seller’s Market would be defined as less than 2.5 months of inventory and a Balanced Market between 2.5 to 5 months, and more than 5 months would be a Buyer’s Market. I will expand on what this looks like in upcoming articles and analysis.