Retail Price reductions are here (to stay?)
Property Manager · Nashville & Salt Lake City · Member since 2015 · 78 posts · 20 votes
Retail Price reductions are here (to stay?)
Most Popular Reply
Real Estate Broker · Salt Lake City, UT · Member since 2015 · 145 posts · 150 votes
7yHi Tanner. Good to hear from you again! Many of the investors I work with who have homes listed have complained, "My listings are just sitting there!" They are not panicked yet, but know that they need to factor in a bigger buffer on subsequent deals, and have asked me adjust my flip and rental deal-finding calculators.
I don't think interest rates alone have spooked buyers, but I think the stock market volatility along with tariff talk (certainly related) are adding to the uncertainty. And then there is the natural market cycle. Regarding interest rates, one study showed until we get above 6% the impact on purchases should be minimal. The current 30-year rate is about 4.5%.
Remember that we have had about a 5-6% average per year rise in home prices for the past 6 years in Utah from when we bottomed out in July of 2012. Nothing goes straight up forever, and the housing cycle is no exception. Then you have normal winter quarter flattening/weakening.
As far as the stock market goes, we are STILL in the longest bull run in the 100+ years of the stock market. We crossed above the 200 day moving average on the S&P in the summer of 2011, and are still flying way above it. But the current downtrend has many concerned. We are about 10% below the highs (FYI, an official "bear market" is a 20%+ drop for two months). So stock market jitters must be a factor too.
So what am I looking at now? I think SELLERS, with their new-found equity, should experience very little pain as they take a slightly lower offer to get their homes sold. The DOM (days on market) here in Utah, which has been as low as 8, is now around 35, so we are FINALLY entering a normal market again.
As an agent for investors, I am actually looking forward to the next year. I think the "fear of the sellers" will be greater than the "fear of the flippers" (or B&H investors), so purchases will still happen. That spread is what I am banking on to stay in business and even thrive. Even with flat or slightly downward prices, the flipper believes he/she can get in and out in 3 months and come out just fine, but the seller can see no end to the potential drop (especially those still affected by PTSD from the last correction.) Investors should not be afraid to hold firm on their lower offers. The deals will come as more and more sellers get spooked by increasing DOM.
For those selling rehabs, if necessary, I say take your potentially painful haircut quickly and move on, especially if you have hard money in play.
And if you are about to list a home, remember that it is better to price the home competitively from the start and hold firm than to lower the price each week down from an overly-optimistic starting price. The latter method statistically nets the seller less money--buyers sense a highly-motivated seller and have all the reasons in the world to push hard for an even better deal.
(And whatever you do, don't do what some guys do when buying and drag out the Due Diligence for 13 of 14 days for example and then try to negotiate a huge deduction. That is just wrong. Do it on days 2 to 5 if needed. Please don't ruin it for the seller--everyone is watching the DOM.)
So that is what I am seeing. Let's make 2019 a great year.
7 Replies
- Real Estate Broker · Salt Lake City, UT · Member since 2015 · 145 posts · 150 votes7y
Hi Tanner. Good to hear from you again! Many of the investors I work with who have homes listed have complained, "My listings are just sitting there!" They are not panicked yet, but know that they need to factor in a bigger buffer on subsequent deals, and have asked me adjust my flip and rental deal-finding calculators.
I don't think interest rates alone have spooked buyers, but I think the stock market volatility along with tariff talk (certainly related) are adding to the uncertainty. And then there is the natural market cycle. Regarding interest rates, one study showed until we get above 6% the impact on purchases should be minimal. The current 30-year rate is about 4.5%.
Remember that we have had about a 5-6% average per year rise in home prices for the past 6 years in Utah from when we bottomed out in July of 2012. Nothing goes straight up forever, and the housing cycle is no exception. Then you have normal winter quarter flattening/weakening.
As far as the stock market goes, we are STILL in the longest bull run in the 100+ years of the stock market. We crossed above the 200 day moving average on the S&P in the summer of 2011, and are still flying way above it. But the current downtrend has many concerned. We are about 10% below the highs (FYI, an official "bear market" is a 20%+ drop for two months). So stock market jitters must be a factor too.
So what am I looking at now? I think SELLERS, with their new-found equity, should experience very little pain as they take a slightly lower offer to get their homes sold. The DOM (days on market) here in Utah, which has been as low as 8, is now around 35, so we are FINALLY entering a normal market again.
As an agent for investors, I am actually looking forward to the next year. I think the "fear of the sellers" will be greater than the "fear of the flippers" (or B&H investors), so purchases will still happen. That spread is what I am banking on to stay in business and even thrive. Even with flat or slightly downward prices, the flipper believes he/she can get in and out in 3 months and come out just fine, but the seller can see no end to the potential drop (especially those still affected by PTSD from the last correction.) Investors should not be afraid to hold firm on their lower offers. The deals will come as more and more sellers get spooked by increasing DOM.
For those selling rehabs, if necessary, I say take your potentially painful haircut quickly and move on, especially if you have hard money in play.
And if you are about to list a home, remember that it is better to price the home competitively from the start and hold firm than to lower the price each week down from an overly-optimistic starting price. The latter method statistically nets the seller less money--buyers sense a highly-motivated seller and have all the reasons in the world to push hard for an even better deal.
(And whatever you do, don't do what some guys do when buying and drag out the Due Diligence for 13 of 14 days for example and then try to negotiate a huge deduction. That is just wrong. Do it on days 2 to 5 if needed. Please don't ruin it for the seller--everyone is watching the DOM.)
So that is what I am seeing. Let's make 2019 a great year.
- Real Estate Broker · Provo, UT · Member since 2013 · 689 posts · 511 votes7y
This market hits the brakes and slows down pretty hard when school starts in August, then once the weather gets really cold and we get closer to the holidays we hit the brakes yet again - pretty normal for this time of year for everything to be slow. Lots of folks are trying to sell their average property at or above premium prices in the slowest quarter of the year - makes sense that sellers are having to do some price reductions.
Additionally, it seems that a substantial percentage of the buyers that I've worked with recently are just not willing to pay what sellers are asking. Sellers who got into their home, for say 250k in 2013 and have done literally zero capital improvements are now asking as much as 30% more than what they paid only 5 years ago? how does this make sense? It doesn't. Buyers are not stupid, and even though the market has supported that behavior in the past (sometimes the very recent past), many buyers are just not willing to pay a premium price for the average property. Values have, and will swing pretty far, but the current trend is going a bit beyond what I expected we would see in this decade.
I believe there is a correction coming - even with how "strong" the economy is, I don't see how these values can last. Wages just aren't there.
There will still be movement and people will still be buying and selling in the new year, but I will be really surprised if values rise in 2019 at the same rate they did in 16, 17, and 18. BUT - who knows, humans do some stupid stuff, maybe we'll continue on this same path.
Personally I'm bracing for a devastating financial crash across the entire economy - and this time I think it will hit our hometown here in the happy valleys just like it did in other markets in the 08 s**tshow. I don't think I could fully articulate the reasons for my outlook in under 100,000 words, but what I've seen in the last 20 years paints a bleak picture. I trust my gut, and it tells me we're in for some s**t in the coming years.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes7y
When the market gets incredibly hot.....it actually becomes fairly common to see price reductions. This may seem counterintuitive at first but it is pretty standard.
What happens is when the market is smoking hot, a larger than normal number of homeowners start reaching on price. The properties that are priced correctly sell quickly....but the greed that becomes pervasive in a hot market lends to over pricing, then price reductions. The hotter the market, often means the more overpriced inventory.
District Invest Group546 Reviews - UT · Member since 2013 · 164 posts · 55 votes7y
Hi everyone:
Just curious what you are all thinking and seeing on this now that 2019 is well underway. Rates are down a bit, and the economy still seems to be chugging right along. What are you seeing on prices? Inventory? Are we any closer to a correction?
It seems to me things are still super hot, maybe even more so than last year. I have a property that I may want to move out of and 1031 into something else, but I am having a hard time knowing if this is a good time to do so. It seems I could easily sell it for a good price, but it might be hard to find a good deal on a suitable replacement... Is there any reason to think it is better to move forward with that now, or that it could be better to wait? What are you seeing and experiencing lately?
- Rental Property Investor · Salt Lake City, UT · Member since 2016 · 7 posts · 3 votes7y
Originally posted by @Steve Theobald:
...The latter method statistically nets the seller less money--buyers sense a highly-motivated seller and have all the reasons in the world to push hard for an even better deal.
Do you have a reference for this statement? I agree with you and have always felt that this was the case, but would love the chance to see some hard data.
- Real Estate Broker · Salt Lake City, UT · Member since 2015 · 145 posts · 150 votes7y
@Spencer P. I have heard it mentioned several times, but I will try to dig it up.
- Rental Property Investor · Park City, UT · Member since 2019 · 84 posts · 149 votes7y
Did you look at the homes *sold* during the same period? Conclusions drawn from partial data sets will usually be flawed. In this case, I think you're looking at the loser properties (because all the winners were sold quickly and often for list or more) and trying to draw sweeping conclusions about the state of a very complicated market.
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