Making Sense of Conflicting Market Statistics

The Real Estate Espresso Podcast

Making Sense of Conflicting Market Statistics

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Making Sense of Conflicting Market Statistics

Welcome to the Real Estate Espresso Podcast, your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re delving into the national average numbers for residential real estate. The statistics seem to be conflicting, and it appears like the numbers are not adding up. On today’s show, we are going to untangle the apparent contradiction to make sense of what’s genuinely occurring.

The National Association of Realtors reported that sales volume in September plummeted to the lowest level since October of 2010, with an annualized rate of 3.84 million homes being sold. This is a three and a half percent decline from the same period last year. Inventory of homes for sale swelled to a 4.3-month supply, and finally, the median price of a home escalated 3% in September compared with the same period last year, to a price of 404,500. These are your nationwide statistics.

Usually, you would think that falling sales volume combined with a growing inventory of homes for sale would equate to falling prices. If demand is falling and supply is rising, then you would expect prices to tumble. But then, why the 3% rise in the median sales price?

Let me propose a theory. If, through some quirk, the mix of homes sold happened to be skewed towards larger and pricier homes, that would be one possible explanation of why the median price might be higher. In that case, it’s not an increase, but a change in the home sold mix. It turns out, this possible explanation seems to be precisely what happened.

We do have a bifurcated market; nearly 30% of all transactions are cash sales, where no mortgage is recorded on the title after the purchase, while first time homebuyers make up only 26% of all purchases, an all-time low. First time buyers usually buy smaller and more affordable homes, while cash buyers are likely moving from one larger property to another.

This factor is further compounded by the National Association Realtor’s Rule Change, which necessitated buyers to pay the buyer commission. Most lenders will not include this fee in the loan amount, essentially doubling the down payment from a few months ago before the ruling. Secondly, rising interest rates have made homeownership less affordable for those first-time homebuyers. Despite this, the market is still indicating fast movement.

Days on market have increased from 21 days last year to 28 days now, still pointing towards a seller’s market. But the 4.3-month inventory suggests a balanced, if not buyer’s market. Some homes are selling quickly, others are taking longer, which might appear counterintuitive but is happening in reality.

As inventory rises and days on the market increases, we’re also noticing a shift in sales towards larger and more expensive properties, creating an illusion that prices are rising when looking at the average or median price.

In conclusion, with fluctuations in the mortgage interest rate and most first time buyers relying on assistance from their parents, we have two distinct markets for single family homes. Those not sensitive to interest rates might increase in the months to come. We’re likely to see a change in buying behavior for first-time homebuyers once the mortgage interest rate drops substantially. All these changes will continue to shape and reshape the real estate market going forward.

Stay motivated and keep making great things happen. We’ll converse again tomorrow.

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