As we are finishing out 2018 and continuing to prepare for 2019, I thought it is a good time to talk about the State of the Local Real Estate economy.
Interest rates are continuing to rise. The 30-year interest rate is 4.83% (October 2018) compared to 3.90% (October 2017). This trending increase is something I expect to continue in 2019. This creates some possible affordability issues for first-time homebuyers as well as effecting the move-up buyer’s.
Present listing inventory remains low but is returning to normal inventory levels. Currently, the Omaha Area Board of Realtors has 2124 active single-family residential listings and 1160 active land listings. The number of new pending properties in November of 2018 was 904 versus 991 in 2017 (down 8.7%). This compares to October 2018 new pendings of 1092 versus 1164 in October of 2017 (down 6.2%). In addition, November 2018 closed residential properties was 1818 versus 1992 in November 2017 (down 8.7%). Thus, we are in a seasonal adjustment and the market is in the early stages of a correction. I look at this market in three categories. Homes below $225,000 who are first and second-time buyers, homes priced $225,000-$300,000 which make up the middle market and then the homes over $300,000 would be considered the upper-end executive market.
The market with homes below $225,000 has shifted from a strong seller’s market to a normal market (with maybe a slight advantage to a seller). Homes are selling fairly quickly but are not but receiving multiple offers as they have in the past.
The middle market, between $225,000 and $300,000 has slowed tremendously and is now back to a normal market.
The existing marketing in $300,000+ is a buyer’s market and you should be having honest, professional conversations with your sellers about what their motivation is, how important it is to get their house sold and in what timeframe to determine your pricing and marketing strategy. Unfortunately, a $500,000 home in 2011 is probably not worth anymore today. The more upper-end you go in the market, the more you will see homes selling for the same or less than they did seven years ago.
New construction continues to be strong, but over the last couple of years we have seen prices continue to rise. This is due to a combination of increased labor costs/shortage of labor available and an increase in material and land cost. We are starting to see home buyers look at existing homes as an alternative to new construction because of the increased cost and increasing interest rates. Some of these homes, in certain price ranges, are no longer affordable.
What does this mean to you and your sellers? We have to look at things from a different perspective. It will not only be pricing that is important, it will be setting correct expectations on condition, staging, and having initial photos online (99% of potential buyers start their search online). It’s critical to set expectations about the number of showings, open house traffic and days on market. Please do not set false expectations with your sellers. We all need to be realistic about the days on market and what is now considered a good/reasonable offer compared to what we were seeing in a spring and summer market.
In summary, interest rates have been rising, we are continuing to see the average sales price rise, and the market is becoming more “normal.” It is your job to create interest and activity. Remember, we are the most productive real estate office in North America for a reason!
Below is some additional data:
UNEMPLOYMENT RATE:
U.S. – November 2017 4.1% vs. November 2018 3.7% ↓.4 % Year over year
Omaha – October 2017 2.7% vs. October 2018 2.6% ↓.1 % Year over year
CONSUMER CONFIDENCE: November 2017 is 129.5 vs. November 2018 135.9
CLOSED RESIDENTIAL UNITS: November 2017 1992 vs. November 2018 1818 ↓8.7 % Year over year
YTD AVERAGE CLOSED RESIDENTIAL SALES PRICE:
YTD 2017 $211,300 vs. YTD 2018 $226,500 ↑7.2 % Year over year
Written by Vince Leisey, Broker/Owner Berkshire Hathaway HomeServices Ambassador Real Estate Company