Perceptions are a very powerful thing. In good times, perceptions run to the extreme on the high side, and in more challenging times they run to the low side.
Among the current perceptions about the housing market is the idea that everything is selling slowly and well below asking price. A few years back, we had an equally strong perception that everything was selling lightning fast, and well above asking price.
As in all things, the reality is different than the perception. Three important measurements of market success expose the misperceptions that have abounded. The average days on market, the number of homes sold, and the sale to list price ratio, all reveal the truth in the marketplace.
In sum, the truth is that houses must be well-priced to sell in any market and there are buyers in any market as long as price matches the existing supply and demand picture.
A great example is found at the peak of our unprecedented sellers market, in late summer of 2006. We commonly hear that everything sold in just a couple of days and for well above asking price. The reality is not so.
In August/September of 2006, well-priced homes were in fact selling quickly, averaging just 45 days on market. That is fast compared to 90 day averages seen in a balanced market, but still far longer than just a few days on market.
Also, not all homes were well-priced. We define well-priced as those homes that did not require a price reduction before selling. Only 59% of homes at the time were well priced. The other 41% that required price reductions sold at just 93.9% of asking price and sat on the market an average of 102 days.
Click image to enlarge.
So even in the midst of a market that was hyperactively escalating, it was still possible to over-price a home. Buyers ignored 4 out of 10 homes until those sellers brought prices down.
Equally telling is the fact that well-priced homes still averaged just 99.2% of asking price. That is close to full price, but it certainly does not support the idea that every home was bid-up. To be sure, many homes were, but most were limited to homes that were listed just below market value. Buyers themselves then exposed the true value by bidding the home price up.
In todays market, perceptions are equally misaligned with the markets actual performance.
The most common perception is that homes are taking a very long time to sell. In fact, well-priced homes today (based on May 2009 sales) are selling in an average of just 24 days three weeks faster than the peak of our hot sellers market.
On the opposite end of the spectrum, homes that required at least one price reduction before selling sat on the market for an average of 189 days, and required an average price reduction of 18.4% before selling.
The biggest reason that our market is moving faster for well-priced homes has to do with a couple of general market conditions. The first is that interest rates are very low and buyers want to act while they are down. Secondly, the $8,000 first-time homebuyer tax credit, which expires later this year, is propelling those buyers more than ever. Buyers know these are fleeting conditions, so they are acting now.
However, the growing disparity in days on market between well-priced homes and those that require at least one price reduction tells us that buyers are being ever more critical about the market. They are ignoring those homes that do not present value, but they are jumping quickly on those that do. And as we saw during the peak, these well-priced homes are selling at close to full asking price - 97.7%.
Click image to enlarge.Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.