Wednesday, October 31, 2007

September Sales Stats Update

In my October 18 post, I provided a link to the September Residential Sales Statistics. Multiple Listing Service (MLS) President Judy Lowe summarizes the stats on the first page of the link. Recently, Judy has started commenting on the number of pending sales, instead of the number of sold housing units. A pending sale is one where the inspection, financing and appraisal contingencies have been completed, and the buyer and seller are just waiting for closing. It's almost a done deal, but it's not the same thing as a sale, where everything is signed, sealed and delivered, and the deed has recorded in the buyer's name. The number of pending sales are quite a bit higher than the closed sales. Check this out:
Pending Sales....2,053....1,777....1,024.....989
Closed Sales......1,226....1,098....1,019.....683

It usually takes about 30 days to get from contract acceptance to close of escrow, so most of the June pending sales should be closed sales by July. I thought the big discrepancy between pending sales and sold units indicated that over a third of the pending sales were canceled and didn't get to closing for some reason.

Judy is Executive Vice President of my company, Realty Executives, and she is a very smart and approachable manager. I asked her why she is focusing on pending sales instead of solds. She said she thought pending sales were more indicative of buyer activity. She explained that when the market was hot and the sales were easy, home builders did not list their inventory in the MLS. Realtors had to go to the builders' websites to see what they had for sale. When the market went soft, builders started putting their inventory in the MLS. This explains, in part, why there are so many more listings in the MLS than there were a few years ago. New construction wasn't in the MLS a few years ago, but now it is.

Judy further explained that with new construction, the time from contract acceptance to closing can be months, because house construction usually begins only after the purchase contract is signed. It's not surprising that June's pending sales didn't become solds in July, because many of those pending sales were new construction contracts. She noted that the apartment-to-condo conversions are also causing long escrow periods while the buyers wait for their new condos to be completed.

Judy says that she hopes the MLS will be able to separate resale houses from new construction in their stats by next year, but this is a huge undertaking, and we shouldn't count on it.

So things look rosier than I thought when I reported 683 sales in September. However, this brings up another trend that sellers need to keep in mind. Builders are offering aggressive incentives to reduce their housing inventory. Free upgrades and price reductions are common. This provides tough competition for sellers of existing homes, especially older ones with small rooms, small closets, low ceilings, outdated floorplans, no garage, no air conditioning plus elderly plumbing, electrical and mechanical systems. Buyers can get a brand new house, and pick out their finishes, for less than the cost of a 20 to 50 year old house. While I myself prefer the older houses, many buyers choose what they perceive to be maintenance-free, semi-custom new construction.

Sellers beware! Your competition in the new construction industry has accepted the changing market conditions, and they are adjusting very smoothly

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