For those who are hoping for a rebalance of the market (we confess to be in that camp) this last month put a damper in the steady progress towards that goal which had been building since April. Increasing supply is the answer to rebalancing – and July delivered in spades with a rise of almost 25% of active homes for sale. August however reversed that trend, particularly in the last two weeks. Suddenly we find ourselves with less active homes at the start of September than the start of August. What is going on? Are home buyers suddenly buying again in droves? No. In fact just the opposite, ordinary homes buyers are feeling the pinch of affordability courtesy of significantly higher prices. Sales counts (closed sales) are still dropping and are lower than last month and last year at this time.
So what the heck IS going on? Michael Orr of the Cromford Report explains:
“This unexpected fall is mainly caused by two factors:
• the rate of arrival of new listings has started to fall, especially over the last 2 weeks
• the demand from iBuyers and investors has intensified, taking listings under contract more quickly than usual. If it were not for the activity of investors and iBuyers, and particularly the latter, the market would have cooled during August. This would have been following the trend established since April. However iBuyers have purchased so many homes over the last month that they are significantly distorting the market dynamics. These homes are mostly going to be re-marketed shortly so they will almost certainly increase supply over the coming weeks…
..we have never seen iBuyers so determined to increase their top line… the iBuyers have purchased about 2,850 homes over the last 3 months. That represents almost 9% of re-sale purchases…We can see that the iBuyers (particularly Opendoor and Zillow) have increased their inventory massively. If iBuyers had not done this, we estimate that supply would already be higher by some 1,800 listings…. We conclude that pricing would also be weaker without their intervention. This begs the question: what happens if they stop buying on this massive scale?
The market is therefore more precarious than if demand were primarily growing through owner-occupiers.”
Permits for new homes are up 32% for January through July this year and are at their highest since 2006. Also typical seasonal patterns see listings increase in October. Could there be a convergence of new builds, iBuyer resales and seasonal inventory increases? What could a significant convergence do to our already moderating pricing? Time will tell. Interesting times indeed.