With Terry Story, 30-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
Podcast: Play in new window | Download
Welcome to 2019’s first episode of Real Estate Round-Up which covers a softening housing market, a slowdown in luxury home sales, and tips to price your home for a quick and fair-priced sale.
November Housing Starts Up 3.2%
Let’s start with some good news. According to the U.S. Census Bureau, November 2018 housing starts were at a seasonally-adjusted annual rate of 1,256,000 units. This was 3.2 percent higher than October’s revised estimate of 1,217,000 units. Housing starts measure the commencement of new construction and are a forward-looking indicator.
However, November 2018 starts were 3.6 percent lower than the 1,303,000 pace in November 2017. In addition, November’s single-family housing starts of 824,000 were 4.6 percent below the revised October figure of 864,000. This drop points to a slowing in residential real estate activity and a softening housing market.
Terry points out that November’s data is distorted by the devastating wildfires in California, hurricanes on the East Coast and other such adverse events. So, the data sounds a little worse than it may really be. As climate-related issues recede, we could see a pickup in construction.
Moreover, the lead time between planning, permits, and construction often runs into years. So, the economy could be really good when builders start planning new construction but could end up being really bad by the time they are ready to start construction, with a softening housing market. This cyclicality plays a major role in real estate and creates problems for builders.
Softening Market For Luxury Homes
In December, luxury home builder Toll Brothers reported 4th quarter results. In its press release, the company stated that despite a healthy economy, it saw a moderation in demand. Their homes have average prices of about $865,000, well above the $222,800 median home price in the U.S. Fourth-quarter contracts declined 15% in dollars and 13% in units compared to the same period a year ago.
In November 2018, Toll Brothers saw further signs of a softening housing market. It attributed the slowdown to rising interest rates, significant price appreciation over the past few years, and fewer foreign buyers.
Terry sees parallels in the Florida luxury homes market. Homes in the $500,000 to $700,000 are transitioning from a balanced market to a buyer’s market. Homes below that price range still favor sellers. Terry notes that trends in housing move top down. So when the luxury market starts to come down in price, lower-priced homes follow.
Homes Selling For Below Asking
Steve notes that, currently, 62 percent (or roughly two in three homes) are selling for less than the asking price. This suggests that asking prices are higher than buyers are willing to bear and points to a reduction in home prices.
Terry attributes this to the mispricing of a home for sale and to a softening housing market. Many sellers are basing their listing prices on what their neighbors are asking for. Very few sellers are looking at what comparable homes are actually selling for.
Price Your Home Correctly
As a result, market forces are increasingly forcing sellers to make price adjustments. In addition, higher than market prices result in a home being listed for longer, and that too makes buyers suspicious, causing them to lose interest in the home.
If instead, savvy buyers see a new home come on the market at the right price, they pounce on it.
Rule Of Thumb On Offers
A realtor’s rule of thumb is eight showings and no offers or two weeks and no showings. If either one of these is triggered, the home is likely priced too high.
If a home isn’t priced correctly, potential buyers wait for a price adjustment. They will not step in and make a low bid. Buyers tend to only make offers on properties that they feel offer good value.
First Offer Is Usually The Best
In closing, Terry says the first offer is usually the best offer. If the home is priced right, especially in this softening housing market, motivated buyers will pay fair price, barring the few who come in with ridiculous low-ball offers.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terri Story. Terry’s a 30-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: What’s going on with housing starts? We just saw a number last week that housing starts rose by 3.2%, but there’s more story behind those headlines.
Terry Story: That’s right, but-
Steve Pomeranz: But.
Terry Story: The but is-
Steve Pomeranz: Yes.
Terry Story: Single-family home starts dropped. Starts means new construction.
Steve Pomeranz: Yeah, so that’s not a good sign for the future of, well, the real estate market.
Terry Story: Yeah, and keep in mind that these numbers are slightly distorted because of we had the fires in California, hurricanes. So, it sounds a little worse than it really is, but there is some validity to it.
Steve Pomeranz: Well, that suggests that there may be some pent-up demands, so you’ll see higher numbers in a few months as those issues get washed away, unlike the houses in California and the hurricane.
Terry Story: I know, I picked a bad word.
Steve Pomeranz: Bad choice of language right there. But it is also distorted because a lot of these starts were really in the apartment.
Terry Story: That’s right. There’s a lot more, I think it was up 20%, Steve.
Steve Pomeranz: Yeah.
Terry Story: In apartments, condos-
Steve Pomeranz: They’re still building I know in our area. They just love building these apartments.
Terry Story: Yep, yep.
Steve Pomeranz: And you wonder will it ever end; the things are so cyclical, and the lead time between for the planning, you know, securing the property, the planning, the construction.
Terry Story: It’s several years.
Steve Pomeranz: It’s years. So, the economy could be really good when they start and then really be bad when they end, and it creates all kinds of cyclical problems for these companies.
Terry Story: And you know what? Perhaps it may be more profitable for the builders to be doing that than single-family homes. That might be another thing to think about.
Steve Pomeranz: That’s true. Interesting. Well, we saw a report that luxury homes as well are showing some softness. I know the Toll brothers said they were showing less housing starts. I think the number was 9% cancellations unless housing starts and those are luxury homes because their average price is around $900,000.
Terry Story: That’s right.
Steve Pomeranz: Yeah, versus the average price is about $300,000 for us.
Terry Story: Correct.
Steve Pomeranz: So they’re both three times as much so there is some softness in your industry. Now what are you seeing in your particular area?
Terry Story: You know, it’s kind of the same story. Our luxury market has softened. The balanced market, which would be, in our particular market anywhere from say five to seven, that price range is balanced, meaning it’s not a buyer’s market, it’s not a seller’s market, it’s starting to transition, where anything less than that is a buyer’s market. So you’re looking at under 400,000. Boy, we could use a lot of that inventory.
Steve Pomeranz: Yeah, so you need more sellers in that area but the balance and the five to seven. But you say it’s starting to turn, you mean towards the buyer?
Terry Story: Towards the buyer, yes.
Steve Pomeranz: Towards the buyer, yeah.
Terry Story: Yep.
Steve Pomeranz: Yeah, so, okay.
Terry Story: So when the luxury market starts to come down in price, it usually starts from the top down.
Steve Pomeranz: Okay, I didn’t know that.
Terry Story: And then you’ll see it’s just the way it works.
Steve Pomeranz: Yeah, that’s interesting. Well, the other aspect of what’s going on right now was that more homes are selling for less than they’re asking price, the usual. Tells us about that.
Terry Story: That’s actually about is 62℅%, two out of three homes are selling less than they’re asking. When you think about this, okay, that’s not a big deal because you’re pricing at a certain price. You do not necessarily expect full price.
Steve Pomeranz: Right.
Terry Story: So what they watch is, you know, how many of these homes start to sell less than asking. Which is also indicating, or indicative of, the houses being priced too high.
Steve Pomeranz: Okay. Well, let’s talk about that because there is a negative consequence of pricing your home too high, so describe that for us.
Terry Story: Sure. So what happens, that a lot of people put their home on the market based on what the neighbor put their home on the market and their home hasn’t sold
Steve Pomeranz: Yeah.
Terry Story: So you get all these sellers who think their houses are worth more because of what a neighbor is asking. They’re not necessarily looking at what has sold.
Steve Pomeranz: Yeah.
Terry Story: Especially in a rising market-
Steve Pomeranz: Yeah.
Terry Story: It’s easy to keep pushing the envelope?
Steve Pomeranz: Sure.
Terry Story: But in our market, for example, 20%—which is the absorption rate—20% of the properties sell each month.
Steve Pomeranz: Okay.
Terry Story: So if you’re going to be a seller and you want to sell your home, it needs to be within that 20%. It needs to have the condition of a 20% home; it has to be priced accordingly. What we’re starting to see is more and more price adjustments.
Steve Pomeranz: Now the negative part of pricing your home too high is that if it stays on the market too long because of this bad pricing, people look at it, and it kinda gets-
Terry Story: Stale.
Steve Pomeranz: It gets stale.
Terry Story: Yeah, people say, well, what’s wrong with it? Why hasn’t it sold yet? Especially when you’re dealing with buyers that are very savvy and educated. When a new one comes on the market, and it’s priced right, they pounce on it.
Steve Pomeranz: There’s a window-
Terry Story: There’s that window-
Steve Pomeranz: You guys describe it as a window.
Terry Story: Correct, really in two weeks I know exactly what’s going on. In 30 days if you haven’t gotten an offer if it’s priced right, in this market, it’s probably not priced properly.
Steve Pomeranz: Wow, interesting. Now you were talking off-air about a rule-of-thumb about the offers that you get.
Terry Story: Yep, yep, well, so our rule-of-thumb is eight showings and no offers. Or, well, depending on the price point. Two weeks and no showings? You need to consider a price adjustment.
Steve Pomeranz: That’s all? Two weeks? That’s not much.
Terry Story: Two weeks. Depending on the price point.
Steve Pomeranz: Yeah. But let’s say you only had two showings.
Terry Story: So let’s go three weeks. So two showings.
Steve Pomeranz: Yeah.
Terry Story: And it’s been three weeks, especially when you just put it on the market, forget it.
Steve Pomeranz: No that is short window then.
Terry Story: It really is.
Steve Pomeranz: Has that window decreased over time, I mean I haven’t sold a house in a long time, so I don’t remember.
Terry Story: No, what happens is—you’ve got to remember—anyone looking to buy a home, who’s been looking, has been looking for the last 30, 60, 90 days and once that most motivated buyer has honed in on an area and a new one comes on the market, they pounce on it. You’ll get a rush of traffic. If it’s not priced properly those buyers are looking at it and watching it and it’s like, yeah, I’ll wait.
Steve Pomeranz: No, they wait for the adjustment.
Terry Story: They sit there and wait for the adjustment.
Steve Pomeranz: And they’re not going to sit there and go, well, I’ll make a very low bid.
Terry Story: They will not.
Steve Pomeranz: People don’t really want to do that.
Terry Story: No, buyers will only make offers on property that they feel are good value or of value.
Steve Pomeranz: Interesting. Also, there was this idea that the first offer is the best offer. We have about a minute left. Tell us about that.
Terry Story: Okay, so generally, yes, that is true because in the beginning, if it’s priced right, those are your most motivated buyers. They want the house, they’re going to pay, assuming you’re not way overpriced. So generally, as a rule of thumb, 9.5% of the time it is your best offer unless it’s that ridiculous low ball. You’ll know that low ball.
Steve Pomeranz: And you as a professional will go, that’s not a real offer.
Terry Story: Correct.
Steve Pomeranz: Yeah. You’ll know. You can smell it.
Terry Story: You’ll know. It walks like a duck.
Steve Pomeranz: [LAUGH] Yeah, the thing is if there’s offers made and they haven’t even seen the property that would be one-
Terry Story: No, real buyers make real offers that they want to buy your house, they don’t want to insult you. Very rarely do I get low-ball offers.
Steve Pomeranz: I know I always thought, well, I’ll price it at X and, well, if they want it, price it and give me a low-ball offer, that’s fine.
Terry Story: No, they won’t make an offer unless it’s priced right.
Steve Pomeranz: But they don’t do that. Well, they don’t do that.
Terry Story: That’s the truth.
Steve Pomeranz: Well, a lot of good information there.
My guest, as always, is Terry Story, a 30-year veteran with Keller Williams. And she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.
