Question: Have you noticed a change in the real estate market lately?
Summer Slowdown is Normal, Likely More Pronounced in 2021
It is normal for the real estate market to slowdown as we transition from the intensity of the spring market into the summer market and we (myself, my colleagues, and lenders I’ve spoken to) have seen that shift over the last few weeks.
I don’t think we are anywhere close to experiencing a market correction, but I do think the change in market conditions from the spring market (which really began in January/February 2021) to the summer market will be more pronounced this year because of COVID.
Buyers More Distracted By Travel/Events
Now that most of our buying population is vaccinated and businesses/events are open, Buyers’ attention is finally being focused on trips, events, and visiting friends & family rather than solely on their home search. Diversions are usually highest in the summer and around the holidays, thus historically slower markets, but this summer and holiday season will be met with an unusually high number of distractions for Buyers (that’s a good thing!).
Asking Prices Catching Up
Another factor in the shift in this summer’s market is that asking prices are finally starting to catch-up, in many cases, to actual market values. During the first 3-4+ months of 2021, the sales data (sold prices) wasn’t there or wasn’t enough to give Sellers the confidence to increase their asking prices 5-10%+ over 2019-2020 prices, which is why we’ve seen such extreme price escalations this year. Now that asking prices are falling more in-line with what the market is willing to pay (based on my experience over the last 4-8 weeks), the number of offers and wild escalations should subside.
What Likely Will/Will Not Happen
Homeowners planning to sell should not worry that the bottom is falling out of the market, but expectations should change compared to previous months. Here’s what I think the shift will and will not look like:
- WILL result in fewer total offers on competitive homes
- WILL result in fewer properties selling within the first week
- WILL result in Buyers negotiating better/more contingencies
- WILL result in less extreme price escalations
- Will result in fewer homes listed for sale (likely a 20-30% drop compared to March-May)
- WILL NOT result in prices falling (prices should stabilize)
- WILL NOT result in a Buyer’s market
Spring vs Summer, 2016-2019
Let’s take a look at how the Arlington real estate market shifted from spring to summer from 2016-2019 to give some historical perspective. I did not include 2020 because it will always be an outlier that provides little value for historical trends/context. I looked at four data points that I use to measure market conditions:
- Percentage of homes that went under contract within one week of being listed
- Percentage of homes that sold for at or above the original asking price
- Average sold price compared to the original asking price
- Number of homes listed for sale
Here is a summary of findings from the charts shared below:
- Intensity of demand (under contract within a week and homes sold for at or above ask) dropped from the spring to summer season all four years, with the exception of a slight increase in the homes being sold for at or above ask in the summer of 2019 (likely due to a significant drop in supply due to the Amazon HQ2 announcement in November 2018 putting upward pressure on prices all year)
- The average sold price to original asking price dropped each year except 2019 (remained almost unchanged) suggesting less extreme escalations and more price negotiations
- The number of homes listed for sale in the summer dropped by about 20-30% each year compared the spring market