Happy February!
The “preliminary” January stats are out, but I’m not trusting them. TrendGraphix, the data aggregation tool I use to look at stats every month, shows a pretty dramatic discrepancy between the December stats they provided on January 1st and the same period on the same charts this morning. . . I’ve seen this happen before, but it’s rare. I think it could be a result of them missing some end-of-the-month data every month, which they add in their final version, which is then released 4-5 days after the 1st of the month. The discrepancy was pretty large this month, so I’m waiting until the final version comes out before drawing any conclusions based on stats. And furthermore, because the January stats only reflect what happened in December, even if there were no discrepancies, it wouldn’t paint an accurate picture of the market. . . I don’t need any stats to tell you that the Seattle market for single family homes is downright stupid right now.
You’ve probably already heard that in most neighborhoods in Seattle (and all of the suburbs) virtually every property with an asking price that’s somewhat reasonable is receiving multiple offers and many properties are selling for literally hundreds-of-thousands of dollars above the asking price. Yay for sellers; ouch for buyers!
And what’s worse, buyers’ agents are encouraging (or at least allowing) their clients to take risks that are beyond reckless. In virtually every case that I’ve heard about a buyer losing in a multiple-offer situation (including my own clients’ failed attempts in January), the winning buyer, in addition to offering amounts of money for properties that simply cannot be supported by any comps, buyers are waiving their financing contingencies, offering up insane amounts of earnest money, waiving inspection contingencies without inspecting properties (relying on seller-provided inspection reports), and even releasing their earnest money to sellers immediately after their offers are accepted. All strategies I find to be somewhere between moderately “risky” and downright mental.
The tragic irony in all of this is that we all hear the bragging from agents whose clients won in a 25-offer situation. But they rarely pop up on social media to announce 10 days later that the appraisal came in low, their buyers were not able to make up the difference, and their clients just forfeited $50,000 (or more) in earnest money. . . But I know it’s happening. Lenders, escrow officers, office managers, and managing brokers are more likely to relay the horror stories they’re hearing about on a daily basis (without naming names, of course).
So what’s at the root of all the insanity? I believe it’s a 3-headed beast made up of low interest rates, ridiculously-low inventory, and a backlog of buyers who decided to try and wait out the worst of COVID and started shopping with a FOMO ferocity the likes of which I’ve never seen. . .
Everyone knows about the historically-low interest rates, but let’s talk about inventory. As of this morning, not counting new construction (but including townhomes), there were 372 single family homes for sale in the city of Seattle. In September there were 946. At the current absorption rates, I believe we have something like two-tenths of one month of inventory. In other words, if new listings stopped coming to market tomorrow, statistically speaking, there would be zero properties for sale in 6 days (!!!).
Fortunately, I believe there is light at the end of the tunnel. Despite virtually every property on market being swallowed up at their respective offer deadlines (which means inventory, at least so far, is NOT increasing), in numerical terms, we are seeing more and more new listings coming to market every day. Yes, there are clearly a lot of active buyers out there, but every property that sells means one less active shopper. And while more buyers will undoubtedly enter the market in the coming months, I have to believe that at some point supply will increase, demand will wane, and a lot of new homeowners who lost their minds in “the great bloodbath of January, 2021” will wake up realizing they paid FAR too much for their new digs. The pain of that realization will only be made worse if the market corrects downwards in the coming months (which many brokers, myself included, are beginning to think may happen). It’s one thing to pay fair market value, only to lose 5-10% in the following 6-12 months (which happened to me when I closed on my home purchase in May, 2018, just before the market had a 14% correction). It’s another thing entirely to start by paying a 10-15% premium and then lose an additional 5-10%. . . That’s the kind of hole that could take a while to climb out of!!!
I have never been more tempted to recommend my buyers adopt a “wait-and-see” approach until the madness subsides. The only problem with that is, lacking a crystal ball, I have no idea whether the market will begin to ease in a few weeks or in July. If the current feeding frenzy continues into the Spring, prices could escalate another 10% or more, effectively eliminating any benefit of waiting for a 10% correction. . . So I’m sticking to my longtime mantra: “The best time to buy is anytime you can afford a home that you truly love” (and you plan to be there at least 4-5 years, in case you have to wait out a lengthy recession).
As for you sellers, no, I haven’t forgotten about you. ? You may be tempted to rush your properties to market to take advantage of the current market. But if you are in the midst of making repairs, taking care of deferred maintenance, and prepping your property for market, you’re best off staying the course. Yes, had we been able to predict what January would look like, you could’ve come to market with a leaking roof, peeling paint, and a broken hot water heater and still sold for an extraordinary amount. But as more and more sellers come to market, there will be competition, not only among buyers but also among sellers. The best way to guarantee you’ll “win” (short of hijacking a time machine and going back a few months) is to make sure when you come to market that your property is as “dialed-in” as possible. The cream always rises to the top. And while we have no idea how high the top will be when you come to market, we can definitely make sure your property is as creamy as possible!
Until next time,
Geoff