For the past several years our, the Phoenix/Scottsdale area, market as well as many other markets around the country have been pretty much a seller's market. But how can you tell when your market is shifting to a buyer's market? And I'm not talking about a free fall like 2008-2010, just a normal shift. Well, there are several factors:
1. The days on market in a lot of areas is starting to grow. Historically a balanced market (neither favoring sellers nor buyers) has been benchmarked by 90 days on the market for homes to sell. So if you see the days on market in your area climbing it may be a sign that your market is shifting. It's not the end all be all signal of a slowing market, but it's kind of a Canary in the coal mine;
2. The "Burn Rate" is increasing. The "Burn Rate" is a real estate industry term used to measure the rate at which the inventory of homes is selling. In other words it tells us how long it would take the current inventory of homes on the market to sell at the current rate of sales activity. The way I calculate the burn rate is to take the number of homes that are actively on the market and divide it by the number of homes currently under contract ("Pending"). I use the Pending sales rather than past closed sales because the Pending sales are real time current activity. So if the burn is 3 months or less that signifies you're in a seller's market. More than 3 months and you're typically in a buyer's market;
3. More open house signs appearing. When the market is strong many homes will sell before an agent can even schedule an open house. Many home owners don't like to have their homes held open, but it is part of mine and many agent's marketing plan. However, if the home goes under contract quickly I do not feel it is right to hold it open, and often my sellers don't want me to hold it open after it's entered escrow. So if you're driving around your neighborhood on the weekends and start to see more open house signs than normal it could signal a couple of things; 1. possibly more homes on the market, which tends to signal a buyer's market (more supply means lower prices), 2. homes are staying on the market longer hence agents and sellers are getting more antsy and want to use every tool in the tool box to get the home sold;
4. Increased buyer incentives. When you start to see a lot of sellers offering incentives to get their homes sold, (ie. closting cost assistance, flexible terms, lease back options), it may be another sign that your market has flipped to a buyer's market;
5. Buyer's agent bonuses/increased buyer broker commission. This is an item that the general public is not usually privy to, and not one I've ever really understood (If a buyer is not interested in a particular home I'm not going to try to persuade them to buy it just because I'll get a larger commission), but a lot of agents and their sellers use this tactic when they start getting desperate to sell their home. Conversely, we see sellers and agents cut commissions to the buyer's agent when the market is hot;
6. Steady and frequent price reductions. Agents do their best to list homes at the currrent market values. Sometimes we'll list homes aggresively, but for the most part we don't want to over price a home. It does no one any good. So when you start seeing a lot of home sellers starting to reduce their prices it's usually a sign that the market is slowing.
Now, none of these 6 items on their own necessarilyt signal a change in your market. However, if you witness several if not all of them occuring simultaneously you can be assured that your market has shifted to a buyer's market. And a good Realtor can provide you with all the pertinent information to determine the direction your housing market is heading.
To recieve a free marekt analysis for your Anthem, Phoenix, or Scottsdale area home, please call me at 602-334-3757 or e-mail: jwmurphy@longrealty.com
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