As of August 1, 2017, there were 5,720 homes listed for sale but not yet under contract in San Diego County. While this is up month over month it is actually down 16% year over year. In other words there are considerably fewer homes available for purchase vs. one year ago! In the month of July the median detached sale price of a home was $616,000 up 13% from $545,000 this same time last year.
The number of homes that sold is up 2% year over year. Okay, I get it that doesn’t sound like an interesting number or a big change, but beneath the surface something is going on. The ratio of pending homes sales to sold homes fell 11% year over year. As we look for signs of weakness in our market this ratio is one of the few that we see. You see today’s pending home sale is tomorrow’s home sale. A falling ratio of pending home sales to sold homes should be translating over time into fewer sold homes. The only intuitive conclusion I can make is that a greater percentage of homes that are going pending are actually selling and fewer listings are expiring.
First a little definition, what is an expired listing? An expired listing is a home whose listing agreement expires prior to the home selling. We have not made a practice of tracking expired listings (although we are starting effective immediately), so I don’t have any charts to share with you but I can pull some quick and dirty data to test my theory. Sure enough, when I look it up I find that in July 2017, 556 homes expired prior to selling. In July 2016, 892 homes expired prior to selling. This is a huge change down nearly 38% year over year.
There are a few reasons why homes expire prior to selling. Occasionally an inexperienced agent will list a home for sale and mess up the sale, not perform etc. But more often than not a listing agreement will expire on a home because a home owner wants it listed for sale for too much money. Why are fewer listings expiring in today’s market? Home values are up 13% year over year. Imagine that a homeowner hires the broker on a 4 month exclusive listing agreement. The homeowner is asking 4% more than the home is worth and the broker reluctantly agrees (maybe because he or she is desperate for a listing in a market where there are so few). After thirty days the broker and homeowner have a difficult conversation and the homeowner agrees to reduce the asking price by 2%. No offer materializes. Another thirty days passes and now the market has advanced 2% from when it was originally listed. The home that was asking 4% over market is now at market value. The home sells.
As long as our market sees home price appreciation we will continue to sell more homes than we would expect given a falling ratio of pending home sales to home sales because a rising market leads to FEWER expired listings. Now imagine the flip side because the flip side of this phenomenon will happen–we just don’t know when it will happen. If our market cools off and we have no appreciation, expired listings will increase. Then fewer units will sell. Inventory begins to creep up because more often than not a homeowner whose listing just expired will relist the home for sale but at a lower price and with a new agent. This begins to push down values of homes and the pendulum, which has favored sellers for several years now will swing in favor of buyers.
Bob Flynn, August 2017