Retail Price reductions are here (to stay?)

[Tanner Morrill]

So, taking a look at listed SL County homes prices 250-400k, there seems to be, based on my quick analysis, about 75% of homes had a price reduction of 1% or more. The homes I analyzed were listed in the first half of October. Some of the reductions were $10-20k. What are you guys seeing? I think it's time to pay very close attention to the market. Wage growth just isn't good enough esp. with increased interest rates. 

[Steve Theobald]

Hi Tanner.  Good to hear from you again!  Many of the investors I work with who have homes listed have complained, "My listings are just sitting there!"  They are not panicked yet, but know that they need to factor in a bigger buffer on subsequent deals, and have asked me adjust my flip and rental deal-finding calculators.  

I don't think interest rates alone have spooked buyers, but I think the stock market volatility along with tariff talk (certainly related) are adding to the uncertainty. And then there is the natural market cycle.  Regarding interest rates, one study showed until we get above 6% the impact on purchases should be minimal.  The current 30-year rate is about 4.5%.

Remember that we have had about a 5-6% average per year rise in home prices for the past 6 years in Utah from when we bottomed out in July of 2012.  Nothing goes straight up forever, and the housing cycle is no exception.  Then you have normal winter quarter flattening/weakening.  

As far as the stock market goes, we are STILL in the longest bull run in the 100+ years of the stock market.  We crossed above the 200 day moving average on the S&P in the summer of 2011, and are still flying way above it.  But the current downtrend has many concerned.  We are about 10% below the highs (FYI, an official "bear market" is a 20%+ drop for two months).  So stock market jitters must be a factor too.  

So what am I looking at now?  I think SELLERS, with their new-found equity, should experience very little pain as they take a slightly lower offer to get their homes sold. The DOM (days on market) here in Utah, which has been as low as 8, is now around 35, so we are FINALLY entering a normal market again.  

As an agent for investors, I am actually looking forward to the next year.  I think the "fear of the sellers" will be greater than the "fear of the flippers" (or B&H investors), so purchases will still happen.  That spread is what I am banking on to stay in business and even thrive.  Even with flat or slightly downward prices, the flipper believes he/she can get in and out in 3 months and come out just fine, but the seller can see no end to the potential drop (especially those still affected by PTSD from the last correction.)  Investors should not be afraid to hold firm on their lower offers.  The deals will come as more and more sellers get spooked by increasing DOM.  

For those selling rehabs, if necessary, I say take your potentially painful haircut quickly and move on, especially if you have hard money in play.

And if you are about to list a home, remember that it is better to price the home competitively from the start and hold firm than to lower the price each week down from an overly-optimistic starting price.  The latter method statistically nets the seller less money--buyers sense a highly-motivated seller and have all the reasons in the world to push hard for an even better deal.

(And whatever you do, don't do what some guys do when buying and drag out the Due Diligence for 13 of 14 days for example and then try to negotiate a huge deduction.  That is just wrong.  Do it on days 2 to 5 if needed.  Please don't ruin it for the seller--everyone is watching the DOM.)

So that is what I am seeing.  Let's make 2019 a great year.