Economically, we are living in strange times. Usual sign posts are not as reliable as they once were and it is leading to contradictory signs. Contradictory indicators have been a re-occurring theme for quite a few years. I will chalk it up to the Federal Reserves machinations and monkeying with money and interest rates which prevent normal economic cycles. That is a subject too large for a short blog and determining the cause of these contradictions is moot point anyway.
Several weeks ago I listed a home in North Long Beach. The home has is quite cute. It has 3 bedrooms, but only 1 bath and 1,000 sf of living space . I am trying to determine whether we should list the property at $499,000 or if we can venture into the low $500,000, maybe a list price of $519,000. My first step in assessing the strength of the market is to determine how many homes we may be competing against. North Long Beach is the largest sub area of Long Beach. There are usually many home for sale due to the shear size of the area. If we are competing against of a lot of homes we will have difficulty over $500,000 as over 500k is more the domain of properties with 2 baths, but if there are not many homes to choose from maybe, we can push the price.
In searching the MLS under 500k. There were only 4 homes to choose from with 3 or more bedrooms. This was very positive, but surely the market would open up over 500k? NOPE. I ran under 520k and there were only 2 more homes to choose from. This had me quite ecstatic. I knew the seller wanted to get around $520,000 and this told me that I likely could achieve this goal. With almost nothing else to choose from, pricing power was on the seller’s side. BUT WAIT.
If pricing power was on our side, I should see “One Bath” properties selling over 500k. In the closed sale comps that I provided the seller several weeks ago there was a couple of one bath properties that sold over $500,000. If prices were climbing then the most recent pending sales should show more “One Bath” properties selling above 500k. The pending sales however didn’t not show the optimism that the lack of inventory has forecast. Out of 15 pending sales there was only 1 “One Bath” home sale above 500k, and this property had 1,500sf on a large 7,000sf lot. Basically the pending sales told me that the seller would not get over $500,000. My optimism receded and I knew that I would have to be more “Real” with the seller.
How do I look at these quite contradictory signals. Pending sales tell me smaller “One Bath” properties don’t seller for over 500k. Yet the astonishingly low inventory tells me my seller “Should” have pricing power. Comparing the two indicators “Price” vs. “Lack of Supply”, I have to give the preference to price, as represents the actual outcome. Where as “Low Inventory is just an indicator. But knowing that there is almost nothing to choose from, this home, even if it is listed at $519,000, will still get showings because there are still only 6 homes with 3 or more bedrooms under $520,000 for sale at the time of this writing. Knowing that we will get showings, I will let the market decide, because the market always decides what the price should be. It is buyers that set the price. My job with regards to the list price is just to make sure buyers want to see the property. With only 6 homes to choose from, $519,000 will create traffic. It will be interesting to see where the cookie crumbles.