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July 24, 2006 at 11:15 PM #6987July 24, 2006 at 11:46 PM #29525
sdrealtor
ParticipantJohn
Just curious as to how you developed your price brackets? It would seem to me that the price brackets should be different for every ZIP Code. For example, the basic Starter Home bracket in Encinitas/South Carlsbad is probably $700K and below while that same bracket in San Marcos is probably $600K and below. The next bracket in Encinitas/South carlsbad would likely be $700K to $850K while in San Marcos its probably $600K to somewhere between $700K.If you are comparing the same brackets across different ZIP’s arent you comparing apples and oranges as it falsely would make a higher priced market look more healthy than a lower priced market. For example, in Encinitas/South Carlsbad $750K gets you a roughly 2000 sq ft 20 year old home in need of major updating while in SM it gets you a brand new 3500 sq ft home with all the bells and whistles. Any clarification as to how you adjust for this in your analysis?
July 25, 2006 at 1:11 AM #29529JohnHokkanen
ParticipantThe price brackets used for Months of Inventory are, as I have found, remarkably broad. Up to about 900K, inventory levels usually remain the same. Above 900K, maybe $1M, things start to change. I didn’t think this would be constant across the various zips, but it is.
I a perfect world, I think Months of Inventory ought to be bracketed not by price but by price quartiles. However, most buyers/sellers who are shopping a particular price bracket want to compare between different areas, and they can get confused if you are changing price scales on them.
Anyway, I completely agree with your comments that the same price in two geo areas is different. What the MOI numbers show is that it doesn’t matter below 900-1M…they’re more or less the same. Above $1M, things can vary widely for MOI if you’re looking at 1-1.25 in Escondido vs. Solana Beach.
Anyway, here’s the point I was really trying to make but miscommunicated it…..The average days on market number promulgated by NSDCAR/SDCAR says that stuff is on the market for 60 days. That’s so wrong I can’t stand it. Especially when you look at Months of Inventory that shows, for example, 10 months of Inventory. (If you really believe you have 10 months of inventory, how can it be that market time is 60 days?) The point I was making is that median corrected market time is looking a lot closer to being correlated with Months of Inventory. I have been calculating MOI for a long time and saw this discrepancy (between avg market time and MOI) but was having a hard time understanding what was going on. Now that I’ve computed Median Market Time and found that it’s 120 or more days, that is getting a lot closer to 1/2 of Month of Inventory Time. It will be really interesting to see over the next six months if Median Market Time for upper price brackets really does track the MOI figures (which are as high as 36-48 months). With MOIs in upper brackets as big as they are, one would expect that Median Market Times will grow quite long, though price discounting will probably bring the Median Market Time figure down. Does that make sense or am I just jumbling it up?
John Hokkanen
July 25, 2006 at 6:38 AM #29535powayseller
ParticipantFor the novice, like me, can you explain the mathematical relationship between DOM and MOI? Do you expect DOM to be a certain factor of MOI? If so, why not drop DOM?
July 25, 2006 at 10:44 AM #29567ParticipantThere should be a direct cause and effect between Months of Inventory and Days on Market (i.e., more inventory –> longer time on market).
Days on Market is a popular statistic used by agents when talking to sellers, so it has some historical usage. Unfortunately, though the use of average days on market was probably pretty accurate for the previous 5 years because sales were fast paced and homes would go in the first listing, that is no longer true, and the statistic calculated by the real estate groups is woefully in error now.
I think Months of Inventory is a really good statistic for many reasons. Inevitably, sellers will ask, “How long will it take to sell?” One could respond, “There are 17 months of inventory, so average Market Time should approach 8.5 months.” (It’s not clear how close it will get to MOI/2 because many homes are withdrawn after 6 months.) What I like about MOI is that it allows future projections of market activity based on current inventory and recent sales. It just seems to me to be a better number. It’s just not as consumer friendly.
Meanwhile Median Days on Market that I’ve calculated is around 120 days for the entire population, but I plan to see how this calc falls out when I break it into above $1M and less than $1M, which is, more or less, where the Months of Inventory jump occurs.
JH
July 25, 2006 at 2:57 PM #29591Anonymous
GuestIs this just another way of saying that DOM figures only relate to sold listings? And that inactive/expired/converted to rental status plays no part in the DOM once those listings fall off the system?
July 25, 2006 at 9:37 PM #29633SD Realtor
ParticipantJohn –
Excellent study. Thanks for presenting that info. I completely agree…
July 26, 2006 at 3:13 AM #29658ParticipantTonight I ran the median market times for North County zips for the past 90 days.
109 days Under $750K
99 days $750K to $1M
182 days Over $1MI also ran a few particular areas for comparison for homes over $1M, last 90 days, Median Days on Market, in descending order. Sales count is in parentheses.
323 Fallbrook/Bonsall (17)
281 Escondido (15)
212 Encinitas (48)
174 Carmel Valley (66)
89 Solana Beach/Del Mar (48)I don’t know quite how to explain the small dip at the 750K-$1M segment, other than to say that it is my experience that the significant break is at $1M, which this sort of shows.
Pretty interesting, huh? A little different than the days on market that you see reported elsewhere.
JH
July 26, 2006 at 8:19 AM #29669ParticipantGreat stuff, John. I guess we’d have to qualify this and say these are the DOM for a home that is market-priced. How are these numbers affected by expired, withdrawn, cancelled? Why is Solana Beach more desireable than Carmel Valley and Encinitas?
July 26, 2006 at 8:44 AM #29670GuestThe average DOM can be a misleading statistic in my view. Many unmotivated sellers will leave a property on the market for a year or more without price readjustment until motivation changes enough to price competitively and sell. In some market segments a few listings can impact the average market time significantly. If a property stays on the market for 120 days it is obviously over priced. All properties will sell in one day if priced appropriately. Using an over priced dog as a statistical indication of what the market is doing is misleading at best. I am sure that some of the properties in the example sold (opened escrow)within 5 to 10 days from first exposure to the market. Competitively priced homes will sell in any market. I am too lazy to do the research but I am guessing that a graph could be developed for a buyers market or sellers market (differing supply/demand ratios) showing properties within a certain price range (as compared to competitive properties for sale) will sell if priced appropriately. Oversimplified example: If there is a twelve month supply of homes on the market and the seller wants to sell in 30 days, must price home in lower 10% of competitive homes for sale. The average market time for those homes priced within lower 10% bracket will have fewer days on the market than the higher priced competition (obvious?) In sellers market, if one month supply of homes, price at 105% of competition (similar to 2000-2004 period).
Pricing is strictly a function of demand and competition (supply) All properties in San Diego will sell within 30 days if priced properly. In conclusion, days on market means sellers are unwilling to price their homes to sell. They are either hoping and dreaming, unmotivated (don’t need to sell) upside down and can’t sell due to lack of cash to pay closing costs plus maortgage costs and prepayment penalty (mortgage greater than home value)or ignorant.July 26, 2006 at 8:48 AM #29671PD
ParticipantThanks for the interesting information. Do you have info for Coronado 92118?
July 26, 2006 at 9:06 AM #29674VCJIM
ParticipantWould this not, at least partially, explain the skewing of the median up? If the 750K – 1Mil homes are selling more frequently than under 750K, it would match many of the hypotheses I’ve read here.
July 26, 2006 at 10:16 AM #29681ParticipantI didn’t run counts on each of the brackets, but my guess is that the low end (under 750) is the most frequent.
Median market time for Coronado is approx. 119 days (last 90 days, detached homes). 33 homes in dataset.
Yes, these are market times for just homes that sold, which is useful for getting an idea of how long it will take to sell IF it does sell. Months of Inventory is my predictive way of assessing that question because it uses the current inventory number.
Do you think it makes sense to create a “average inventory” computation where we add up the total volume of homes on market each day for a month and divide by days in month. This would help factor in all homes that were listed but cancelled/expired (not relisted). Any comments on whether that has any value?
JH
July 26, 2006 at 10:25 AM #29683ParticipantQuestion for RLA….
I agree with your analysis. I have only one question…You say “All properties in San Diego will sell within 30 days if priced properly.”
I read this to mean “Any particular property in San Diego will sell within 30 days if priced properly.”
Since there is a large supply, there are insufficience buyers to buy right now all of the homes even if each day prices were revised to put a portion of the homes in “properly priced” category.
One note: I tend to think about being in top 10% of VALUE rather than price, to reflect inherent differences in features, view, location, etc. The identical floor plan may have different particulars yielding two very different prices. The one with the better value has the better shot at selling, even if it has a higher price. You get what I mean?
JH
July 26, 2006 at 4:58 PM #29740GuestHmmm, I don’t know if I necessarily buy the argument that DOM is skewed by non-motivated sellers sitting on their listings. There is a reason why the seller wants or is expecting that price point. Ultimately the reason they do not sell (for x period of time) is that no one is willing to pay their price. It would seem to me that the sellers underlying behavior would positively correlate with the economic factors leading to an increase in DOM, not undermine it.
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