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Is
it a Buyer's or Seller's
Market? |
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The
people whose job it is to monitor such things (not me, the experts)
don't just guess at whether it's a buyer's or seller's market. They
make the determination by analyzing statistics from the marketplace.
They
look at things like the ratio of sales to new listings, and sales to
active listings. They factor in shortening or lengthening
days-on-market periods, rising or falling prices, and the time it
would take to sell off the current inventory on the market.
This
is my own interpretation of those statistics for the Barrie area.
What happens in Barrie happens about a year later in Toronto, so it
is relevant to the GTA. |
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SALES
TO NEW INVENTORY:
In
a seller's market, there are more than 0.60 sales for every new
listing. In a buyer's market, there are less than 0.40 sales for each
new listing. (Or more intuitively, more than 60% or less than 40% of
new listings are selling.)
0.60:1
is only slightly better than half of the new listings selling, but
it's a higher number than it first appears to be.
If
the ratio was 1.0 sale per new listing, it would mean that every
house that came onto the market was selling, no matter the condition
of the house or the price. In reality, there are a lot of problem
houses, and problem sellers, and problem prices, and those houses
don't sell.
Roughly
10% of listings expire, instead of selling, because of problems with
the price, the house, or the seller. That leaves the non-problematic
houses with a top end of 0.90:1 .
Even
in a hot market, there are honest realistic sellers with well-priced
houses that just won't sell. The buyers looking at houses in that
price range, in that neighbourhood, at that time, just don't like it.
They
say there's a buyer for every house. Sometimes, though, your buyer
isn't out shopping when you want to sell. Another 10% of houses on
the market fall into that category.
Even
in a really hot market, the top end of the sales to new inventory
ratio is more like 0.80:1, than 1:1.
On
the flip side, where it trips over into a buyer's market, 0.40
doesn't sound that far from 0.60, so why the big deal?
Imagine
a market where only 20% of new listings would sell. That would be a
0.20:1 ratio. The Great Depression wasn't that bad. Even in
recessions, people still need a place to live, and still have reasons
to buy a house when nobody else is.
The
buyer's market ratio bottoms out around 0.30:1 I'm guessing.
The
top and bottoms of the market is more like 0.80:1, and 0.30:1. The
distance between 0.60 and 0.40 doesn't seem so small in that context.
During
2007 Barrie was in the over 60% seller's market range. During 2008,
it weakened, but still was higher than a buyer's market. In January
2009 things changed dramatically, and the ratio dropped to 0.30:1.
That's definitely a buyer's market statistic, but it's also close to
that Depression scenario.
During
2011, the ratio has been vacillating wildly and has been in the
buyer's market range twice as often as it has been in the seller's
market range. |
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SALES
TO INVENTORY:
In
a seller's market, the sales/inventory ratio is such that the
current inventory would sell in 3 to 6 months. In a buyer's market,
the existing inventory would take 6 to 9 months to sell.
In
Barrie, as recently as the end of 2007, the inventory would have
sold off in 2.8 months. That was a hot seller's market. Even during
2008 this was a seller's market statistic.
In
February 2009, it would have taken 10 months to sell off the current
inventory. That's a seriously entrenched buyer's market statistic and
is remarkably different that the position the market was in during
all of 2010.
In
the fall of 2011, we're back down to 3 months which would indicated
a strong seller's market, although there is a twist. |
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SALES
ARE DOWN BUT PRICES ARE UP:
This
is the quirk that is causing the conflicting buyer's vs seller's
market data.
Prices
have been modestly rising. The averages sale prices for 2011 are, as
of October, 3% higher than 2010. They rose only 2.9% over the
previous TWO years.
The
number of houses that have sold though is declining, with is counterintuitive.
Prior
to the recession, the first one, over 3000 houses sold in Barrie
every year. In 2007, 3,359 sold. In 2010 only 2,666 sold. That's 1/5
fewer sales, which would suggest that it was a slow year.
If
it's a slow year, with fewer buyers, why would prices still rise?
It's
because there aren't fewer buyers. There are the same number of
buyers, but fewer houses to select from. And the reason?....
People
move on average every 3-5 years. The buyers who bought as first time
buyers 3-5 years ago, and should be selling now, can't sell because
they bought with zero money down.
Their
mortgage balance is still so high that they can't sell the house at
today's prices, pay off the mortgage, and have enough left over to
cover the Realtor's commission, the lawyer's fees, the moving
expenses, and the land transfer taxes on the next house. They're
stuck where they are, and the market is missing inventory.
THAT
is why prices are rising and the other statistics are showing a
weaker position for sellers. That's my theory, at least.
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PRICE
REDUCTIONS
Price
changes are a part of listing properties. Unrealistic sellers always
think their houses are worth more than the buyers do.
In
a seller's market, there is enough demand for houses that less than
10% of listings are reduced before being sold.
In
2009, when the market was briefly in a buyer's market state, 20% of
listings were posting price reductions.
The
current monthly rate of price reductions is 28.9 % in the fall of 2011.
That's
a strong buyer's market indication. |
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DAYS
ON MARKET CHANGES
The
interesting statistic that sheds some light on how bad, or un-bad,
things will get, is the days-on-market statistics.
When
prices are falling and buyers are sitting on their hands waiting to
get the best price when the market bottoms out, it seems logical that
day-on-the-market numbers would get longer.
Unfortunately,
a change at the local Real Estate Board has made this statistic
unattainable. I can get it, but only pulling up every sale and
manually calculating.
I'll
do that, but in a day or two. Stay tuned! |
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Conclusion:
We were in a Seller's market, but the pendulum has obviously
shifted, and now the Buyer's are almost equally in control, depending
on the season and the state of world affairs. |
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The
days when almost any house would sell are at a close. That's part of
the sine wave cyclical real estate market.
Even
in a buyer's market though, it's still possible to sell a difficult
house. Presentation and target marketing can still bring in the buyers.
It's
not going to be easy, but if you lose the attitude and we manipulate
the marketplace, we can get your buyer to make his best offer.
If
you're buying, the days of living in your parent's basement and
saving for the downpayment are finally coming around in your favour.
We're
not there yet, but it's time to use those savings to take advantage
of some other homeowner's bad luck.
In
either case, my FAST-TRACK Systems
will lead you through the process and ensure that you put the most
money in your pocket when you're done. Call me now and get
on the FAST-TRACK! |
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