Undoubtedly, demand for homes has fallen from the peaks we saw even a few months ago. One key indicator of collapsing demand is the number of pending listings. In the entire ARMLS database, there were only 6,873 pending listings for all areas and all home types, as of June 15. June is typically a strong month, yet the number of pending listings has never been lower, with one key exception on June 15, 2007. We expect pending sales to continue to soften through the remainder of 2022, largely due to increasing interest rates. Many potential buyers are choosing to go back to the sidelines as interest rates cause monthly payments to increase.
Many experts, in the market, including the Cromford Report, have been saying that the frenzied buying that drove home prices up was caused not by an increase in the number of buyers, but by a lack of adequate inventory to meet demand. The quick retreat of buyers as interest rates rise bears out this theory.
As demand decreases and supply builds, pricing pressure has all but disappeared. A great way to measure this is with the average price per square foot. We can see a clear progression through the sales cycle. For instance:
- Average list prices per square foot are a leading indicator because they are the first to change. Prices come down as sellers lower their asking prices in order to compete for what's left of the buyers still in the market.
- Next to change are the average list prices per square foot for listings under contract. This is because the more competitively priced homes go under contract faster than over-priced listings.
- Finally, the average price per square foot for closed homes will begin to decrease, This may seem counterintuitive, but remember that the homes that are closing today have been under contract for a month or two already, and aren't subject to the softening we see happening in the current market.
Looking at the data as of June 14, 2022, asking prices per square foot are heading south from the peak in April at $364.81 and sliding to around $353 today.
Similarly, the prices per square foot for listings under contract have also trended down to $311, from their peak in May at $314.06.
Finally, closing prices are also cementing the downward trends. While closing prices per square foot have appeared to just move sideways since the beginning of May, keep in mind that those closings went under contract in April or March when prices were near their peak. The high point came on June 10, when prices peaked at $305.97. Since under-contract and list prices per square foot are trending down, there is little hope that the closing prices per square foot are going to continue going sideways.
If current trends hold, the likely scenario is that we'll see closing prices per square foot follow the downward trend in the coming weeks or months, while staying slightly ahead of the average list price per square foot of those closed homes. According to the Cromford Report, this phenomenon has not been seen since they started watching the markets in 2000. The only thing that could cause this to happen would be a sudden, violent shift in prices, like what we have been witnessing since April.
If you have been planning to sell your home in 2022, it's possible that you may face a very different market than what we saw even a few months ago. While much of the equity homeowners have achieved in the last few years can still be locked in, you can no longer expect lavish increases in prices over the next several months, and you may have to take aggressive pricing strategies to attract would-be buyers who are hesitant to take the plunge with uncertainty in the mortgage interest rates.
All data is courtesy of the Cromford Report.
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We are here to help! If you want to find out how much your home is worth in this strong market, email me at [email protected]. We would be happy to help you determine if the time is right for you to sell your home or buy a new home.
