How to Thrive in a Down Market

Leslie Lowery
Leslie Lowery
Published on November 13, 2018

IS THERE A MARKET SLOWDOWN?

The past few weeks have produced more than one news release about a real estate market that seems to be in a complete downturn.

Your Castle Real Estate, founded in 2006, has successfully maneuvered through more than one economic cycle. This, in addition to our strong statistical background, means that we are often looked to as the experts in the real estate economy.

So, are we actually in an economic downturn? If we are, how do we survive?

SOME EVIDENCE SUGGESTS…NO.

There are many statistics comparing current data to the last market peak in 2007 that indicate that the US real estate market is not set to slow down anytime in the future. In comparison to 2007, the United States now has:

  • +25 million people
  • +10 million households
  • +11 million more jobs
  • 1.1% decline in unemployment
  • +$5.7 trillion in GDP (that is bigger than ALL of Japan’s economy)

These date points (plus many more) lead us to believe that the economy is going to continue to expand, and will likely not produce a downturn anytime soon.

SOME EVIDENCE SUGGESTS…YES.

However, there IS evidence that there has been a bit of a market slowdown in when we compare the numbers to those from last year.

In a survey conducted by Lon Welsh, founder of Your Castle Real Estate, many agents reported that showing traffic felt “soft” in July/August, even though the overall stats were fairly strong. This trend continued through September, where showing traffic was more akin to that of the 2010-2012 recession.

Other notable variances include:

  • An 11 percent decrease in under contract volume from September 2017 to September 2018, and
  • A 15 percent decrease in sales unit count from September 2017 to September 2018.

While these one-year comparisons are relevant, it is important to note that with a slightly broader perspective, for example, the home inventory on October 1, 2018 (5,269) is only up four percent from October 1, 2016. This is a normal variance in the real estate market.

HOW DO WE THRIVE IN A DOWN MARKET?

At Your Castle, we always want our clients to be properly prepared for every scenario. So, in case this trend becomes a more permanent shift in the economy, we’ve put together our top four tips for buyers and sellers on how to best navigate a down market:

  1. DO NOT OVERPRICE YOUR HOME.

Over the past 24 months, homes that were priced right at initial listing (i.e. did not require a price reduction) sold in 13 days on market (DOM). Mis-priced homes that required a price reduction needed 58 DOM – over four times as many DOM!

In a very strong market (2015 – early 2018), properties tend to sell for close to asking price, or even at a slight premium. In a very slow market (2009-2012), properties might need up to a six percent discount (luxury housing) or three percent discount (all other housing) to final asking price. As inventory increases (which is currently in the process of happening in the greater Denver area), discount will slowly increase.

To the surprise of most sellers, buyers usually will not make an offer on an overpriced house – they simply move on to the next house. A house needs to be priced within one to three percent of final sales price to get any offer.

To help gage a proper price point for your home, ask your local Your Castle real estate expert. You may also look to the local MLS or websites like Zillow to compare how similar houses have been priced.

2. RECONSIDER WHEN YOU PLAN ON LISTING YOUR HOUSE.

If you are trading up, it does not really matter when you list your house.

  • If you list in Spring, your old home will go under contract (UC) quickly (there are many buyers in the market), but you will have a little more competition for your replacement home.
  • If you list in the Fall, your old home will take longer to go UC (there are fewer buyers in the market), but you will be more likely to accept a contingent offer than in the Spring.
  • If you list over the holidays (mid November – mid January). the market is at its most quiet. You will not have many showings to prepare for, but the showings you do book tend to be very qualified and very motivated.

However, if you are only selling, the time of year can make a difference in your ability to sell, and your ability to sell quickly. If you are only selling, then January – April is a little easier. If you do list in the Fall or Winter, be sure to price your house accurately.

3. BUYERS – TAKE ADVANTAGE OF THIS OPPORTUNITY WHILE YOU CAN.

If you are a buyer, it’s a better time to buy than any time in the last five years:

  • Fewer buyers competing
  • Sellers are surprised their homes didn’t sell the first weekend, so some sellers are more motivated than usual
  • There are a lot of reports of sellers being much more likely to accept contingent offers, a little less than asking price, and working with buyers on inspection notice finding.

If you are a first-time buyer or investor, this is an excellent opportunity! We are not sure how long this opportunity will last, but we recommend that buyers take action before February, as late January is historically when the spring sales boom begins.

If you are trading up, it will be slightly more difficult to sell than it was in Spring 2018, and you will likely receive a little less for your house that you are selling. However:

  • You will have an easier time finding a replacement, as inventory levels are up
  • The seller of the replacement home will likely accept a contingent offer
  • You will make a better deal on your buy side than you would have in Spring 2018

So, all things considered, it is also a great time to trade up!

4. SELLERS – KNOW EVERY SHOWING COUNTS.

In a slow market, every showing is more important that the last to a seller. If you intended to sell your home, be sure to follow these guidelines to help move the process along as efficiently as possible:

  • Ensure your house is always “parade ready”
  • Make your showing times as flexible as you can
  • When you receive an offer, work hard with the buyer to complete the transaction

For more tips and tricks on how to best prepare your home for showings, you can read Your Castle’s best practices for Fall and Winter seasons.

SO, IS IT ACTUALLY ON A DOWNTURN?

While there is SOME statistical evidence that the market is slowing down, we are sill not convinced that it is THE economic slowdown.

The stats for Quarter Three this year parallels the buyer, seller, and agent behaviors we saw in Quarter Three of 2016. This could be due to the biennial elections or the recent controversy surrounding the supreme court.

To us, this simply feels like nothing more than the natural progression of ups and downs that come with working in the real estate market. We are optimistic that the market will return back to “normal” during the Spring season.

What do you think? Is this simply the natural cycle of real estate, or are we headed for an economic downturn? We’d love to hear your thoughts!

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