Oct. 12, 2017
For the past 5 years, Erie has predominantly been a strong “seller’s market,” with sellers dictating the terms, and commanding increasingly higher prices with each subsequent sale. Many homes were pulling in bidding wars, and often selling for well above asking price. Sellers were also able to get away with bringing homes to market with lots of deferred maintenance like damaged roofs, aging appliances, rusty water heaters, and faded exterior paint jobs that were long overdue for a fresh coat. However, none of that mattered when desperate buyers were taking properties “as-is,” or waiving their right to negotiate for repairs after the inspection. Some buyers even went so far as to waive their right to inspect the property at all. Many buyers also resorted to desperate measures like over-bidding, then bringing in extra cash (over the appraised value), to ensure that the deal still closed. People were basically conceding whatever it took, to get creative and beat out the other buyers competing for their dream home. Savvy sellers responded accordingly, after hearing what their neighbors were getting. Each new listing came onto the market a few thousand dollars higher than the one that sold before it. With homes in short supply, they knew the buyers would pay it.
The 2017 spring housing market market in Erie CO got off to a strong start, and we saw the median sale price in April 2017 come in almost $21,000 higher than the previous April of 2016. It certainly looked like we were off to the start of another summer of double-digit appreciation. However, by July a combination of market factors came together to bring strong signs of a market correction. An abundance of new construction homes in Erie CO, a substantial hike to mortgage rates, both combined with a flood of negative press and social media chatter about Oil and Gas activity in Erie, finally applied the brakes to the momentum of our housing market. In fact, the June 2017 housing market saw the largest negative market shift, in Erie in almost 5 years.
DMAR statistics showed that June 2017 housing inventory in Erie was up a whopping 121.3%, over June 2016 levels. In June of 2016 there were only 47 total homes for sale in Erie, compared to 104 available listings in June of 2017. However, “Under-contract” numbers didn’t come close to keeping pace, and only increased by a modest 9.1%. June 2016 saw 44 homes under-contract, while June 2017 only saw a handful more at 48 (despite having twice as many homes available on the market). This means that in June of 2016 that 93.6% of listed homes sold, while only 46.1% of available homes went under contract in 2017. In one year, we’ve seen the market go from almost all the available homes selling in June 2016, to slightly less than half of the inventory selling the following year.
Before anyone starts to panic, I should reiterate 2 key points…
1). The housing market in Erie was moving at such a ridiculously fast pace for the past five years, that it bordered on insanity. Therefore, our market has plenty of room to slow down a bit, but remain extremely robust overall. In fact, most of the major leading economic indicators (that predict major real estate crashes), are currently holding very steady at the desirable end of the spectrum. Economists tracking the housing market pay close attention to indicators like, job growth, interest rates, availability of rentals, foreclosure filings, 90-day mortgage delinquencies, utilization of ARM vs 30yr Fixed loans, utilization of all other risky mortgage products (Interest-Only, Negative Amortization, Stated-Income). Fortunately, these indicators all still look quite good overall for the Colorado housing market.
2). The market pace for the last few years was so fast, that it was quite stressful for most buyers and sellers. The lack of inventory simultaneously made selling a dream, but buying a nightmare! Any seller wishing to cash-in on their newly acquired equity to move-up or downsize, had to contend with a real danger of becoming “temporarily homeless” in the process. In Colorado, once a seller’s home is under-contract, they are legally obligated to hand over their keys in just 3-4 weeks on the designated date of possession (assuming the buyer successfully closes). Selling fast was almost always a given, but the lack of inventory meant that there were no guarantees that the seller could then find a suitable replacement home and put it under-contract in time. In Colorado, our laws dictate that any seller attempting to back-out of a home sale, faces the very real threat of a “Specific Performance” lawsuit. Meaning, a buyer can potentially sue the seller and force them to complete the sale transaction, whether they have found a replacement home yet or not.
So how will this affect those Selling a home in Erie CO?
The two major positive effects, are that this market correction will certainly remove most of the risk and apprehension that both buyers and sellers have been experiencing for the last 4-5 years. No longer will sellers have to worry as much about the risk of having to make a “double-move” when they choose to move-up or down-size. The more manageable market pace now means that the odds are much more favorable, that a seller will successfully secure a replacement home should they choose to move locally. The risk to sellers of becoming “temporarily homeless” just decreased substantially.
For buyers, the more relaxed pace means that they will no longer feel the pressure to instantly offer on a house, for fear of missing-out if they hesitate for more than a couple hours. Also, the more balanced market means that buyers will less likely have to concede to ridiculous terms, like overbidding with extra cash, or waiving their rights to an inspection. Of course, there will still be some truly exceptional homes that draw in competing offers, but it’s now far less likely to happen on a lackluster house devoid of upgrades, or lagging in upkeep.
Along with the positive benefits, there will certainly be a few negative repercussions for both buyers and sellers as well. As more sellers gain enough confidence in successfully finding a replacement, and decide it’s now safe to sell, this could add even further inventory to the market. If demand doesn’t increase again enough to keep pace, it could further increase average days on market, and possibly soften prices even more.
Many buyers hearing this news may be “licking their chops”, thinking that falling prices mean they can wait a bit longer and finally get a more affordable deal on a house. However, that is flawed-logic. When home prices fall due to increasing mortgage rates, it simply means that those buyers will now be making the same high house payment for a less expensive house. The only ones to benefit from the price drop, are those with the ability to pay all-cash, and avoid the new higher mortgage rates altogether.
Now that competition is stiff, what will it take to sell a home in Erie Colorado?
When the seller’s market was at its peak, even the most neglected homes sold with relative ease. Unfortunately, those days appear to be ending quickly. As pressure bears down from all the new construction on the sellers of existing “re-sale homes.” The flood of brand-new homes into the Erie market, has raised the bar on what is now considered acceptable condition. Deferred maintenance such as worn roofs, faded exterior paintjobs, stained (or worn) carpets, pet odors, scratched-up hardwood floors, overgrown landscaping, dead or dying lawns, settling concrete porches or driveways, are all going to hurt a home’s competitiveness. To get the top price, a seller’s home will now definitely need to be in top condition.
Dated finishes with now be scrutinized much harder as well too. Competition between builders means that things like hardwood floors, bronze or nickel plumbing fixtures, slab granite or quartz countertops, stainless steel appliances, and high-end kitchen cabinets, are all standard features on the new homes popping up all around Erie. Re-sale homes with dated finishes like oak cabinets, excessive carpet, brass fixtures/trim, Formica counters, linoleum, white walls, or dated appliances, aren’t going to compete well now. Buyers will now expect homes to either be updated, or priced low enough that they still have room in their budget to add these things shortly after closing.
Consumers won’t be the only one feeling the pinch either. Market transitions have historically affected real estate agents and entire brokerages as well. When the number of transactions in a market goes down, the discount brokers and flat-fee agents typically die-off. A boom market allows for plenty of fast sales, with reduced marketing time, and far less marketing effort on the part of the agents. In that windfall environment, the discount model works well because homes sell so quickly with minimal marketing expense, skill or effort required. However, slower markets require agents to majorly step-up their game to survive. Discount agents, lazy agents, and part-time agents, usually lose the game of attrition, and end up going back to the jobs they had before entering Real Estate. The discount firms tend to die off, because their lower-profit business models are no longer sustainable once their number of transactions shrinks. Business models with low profit margins, require extremely high-volume to work (ie., the fast food businesses). Once the market turns, and the volume of home sales diminishes, only the traditional firms with better profit margins (ie, more traditional listing fees), will weather the slowdown and survive the downturn. Not to mention, the low cost, no-frills firms simply don’t charge enough to keep a home adequately marketed once the “average days on market” increases from one weekend, to 6 months or longer.
Talented, full-service realtors in Erie CO, with extensive experience will again become sought after, in a buyer’s market. Only the most talented agents with top marketing, staging, and pricing skills, will survive. Homes that are improperly priced, inadequately staged, poorly photographed, or have weak online presentation, will simply sit unsold once the market advantage shifts back in favor of the buyers.