🚍💥 Ludicrous Speed: The Market Goes PLAID

In this edition of Real Estate Gone Wild I’m going to talk a little bit about market velocity, and how we use it to gauge where real estate prices are going.

Any spaceball fans out there? It’s not home till you take the wheels off (and convert it to real property).

In real estate, market velocity is measured in time, and it’s the amount of time it takes properties, on average, to go from being brand new listings to being sold. We can also call this “days to contract” because when I say, “sold” I mean that a buyer and seller have agreed to do a deal, signed a purchase contract, and escrow is opened. The buyer hasn’t actually closed yet or taken title to the home. We call that closing.

When properties sell (and we are not a party to the transaction), we don’t know what the price is. It’s considered confidential so it isn’t public data on any sites like Zillow, Redfin, etc. We don’t find out how much it sold for until the deal is totally closed out and it goes on public records. However, we can make some reasonable assumptions about what real estate is doing as a whole based on how quickly properties sell.

When a property is new to market, sellers are usually pretty firm on price. They want to make sure lots of buyers have an opportunity to see it. More exposure and competition means better offers. However, as time goes on many sellers (the reasonable ones - and rest assured there are many that are not) that haven't sold recognize they are priced too high and start cutting their price. At that point buyers also feel less competition so they start offering lower and go deal hunting on listings that have been on market for awhile.

Seller’s reaction to hearing they should be receiving an offer $10k under list price:

First day on market

Sixty days on market

I’m always looking for trend shifts in days to contract because that pretty accurately predicts what will happen to price. If days to contract is going up, price is likely stagnating or going down. If days to contract is going down, especially, if it’s dropping fast, price should go up.

In these two charts you can see the relationship between price and velocity here in Reno. In early 2023 we can see that the Spring buyers started coming out in late January and early February contracting the properties available quickly, and price responded accordingly with an increase in the closed sale price later in February.

Based on where we are currently at with most properties going into contract within two weeks, we should have stable or appreciating price for the time being. If days to contract drops to less than one week it means that many properties are getting multiple offers and we should anticipate price to rip.