Spring Listing Bump is Coming... How Big is the Bump?

I am seeing the traditional listing bump that often comes around every spring. Not just my business or our office, but across the board. Our market is a bit desperate for new listings, so buyers might be able to catch a breath. Springtime tends to bring out buyers however as well, so the question is what the title suggests... How big is the bump?

The COVID 19 pandemic has definitely shaped the current market. I had a record year in 2020 for volume, so I can't say I saw a slowdown in local real estate. The Regional Multiple Listing Service has reported that sales have been robust. But COVID 19 has altered some of the patterns in real estate as well as created in my opinion, a smaller number of fresh new listings. It. may be that some people simply don't want to invite people into their homes during the pandemic out of perhaps safety concerns regarding the virus. This seems reasonable, but at this point possibly more emotional than logical. 

With the vaccines now widely available and many governments pulling back on the lockdowns, some of that concern may be starting to wane. I believe that demand will continue to outstrip supply for the next several months, but this market has given us inventory levels measured not in months, nor even weeks, but DAYS! I have been in real estate for more than twenty years, I can't remember ever having an inventory tighter than two weeks, but that just happened!

I think some of that inventory pressure will lighten but we should remain firmly planted in a seller's market through the summer months. Sellers that make their home available will do better than sellers that limit exposure. This is a general rule even in a seller's market.

I have two new listings this month and I do not expect either to last long at all. This is a great time to sell your home, seller's are firmly at an advantage.

What makes a neighborhood "good?"

Neighborhoods are often the most important factor in a decision to buy real estate. But what really makes one neighborhood better than another? There are many things that impact neighborhoods, some are fluid and changeable over time and others are more permanent and fixed. Fixed conditions are topographic, geographical, or otherwise permanent. Fluid conditions can change through redevelopment, zoning, economics and other variables. 

Buyers are often limited by a budget and that means that some neighborhoods may be out of financial reach. But irregardless of ones budget be it below the local median or well above, a good decision is going to be based largely on neighborhood. Fundamentally there are several key factors in determining the suitability of a neighborhood:

• Location: This is mostly fixed and based on proximity to transportation, shopping, schools, etc.
• Crime: this is a fluid feature based on how much criminal activity is occurring in a neighborhood, this can ebb and flow with normal neighborhood transitions through the various cycle of real estate as well as local government policy.
• Uniformity: This is semi-fixed based on the building and zoning type. Going from an eclectic mix to a uniform neighborhood takes years or decades. But having a consistent neighborhood with similar styles and values is generally a positive neighborhood feature.
• Public spaces: Parks and natural public areas tend to enhance the value of a neighborhood
• Infrastructure: Quality public infrastructure and improvements tends to increase the value of a neighborhood.
• Ownership: The percentage of rental units to owner occupied units affects value in neighborhoods. Generally more owners increases value, unless the rental units are extremely well managed. An HOA controlled neighborhood tends to keep rentals well managed.
• Relative proximity value: Neighborhoods with lower priced homes than those immediately surrounding it, tend to have the values pushed slightly upward on the 'coat tails' of the nearby more expensive properties. Likewise expensive homes surround by more modest homes tend to be dragged down a bit. This is a fixed condition.
• Noise: This is typically fixed and is of particular importance in suburban and rural neighborhoods. The expectation in urban areas like Downtown, is that noise levels will be high so it is a little less of an issue in high density areas.
• Traffic: This is semi-fluid. It is tied to infrastructure and location. It can be improved with infrastructure but can get worse with growth of population or additional development that over extends the existing infrastructure.
• Prestige: Some people want to live in a neighborhood that is prestigious. Usually prestige comes at a very high price. Sometimes however middle-income neighborhoods are also prestigious in that they just happen to be really nice areas of modest homes. That ties into location nd infrastructure. Generally a prestigious neighborhood leads to overpriced homes and are not necessarily better places to live than other similar neighborhoods. Use caution when getting caught up in prestige, it can be a good thing, but not always the best thing.
• Natural Disasters: Some areas are prone to flooding, fires, landslides, etc. Clark County Washington doesn't have a lot of issues with proximity base natural disasters. But buyers should consider the possible dangers of certain locations. Things like earthquakes and tornadoes are going to strike random areas and that is too unpredictable to worry about. Weather and seismic issues are also more of a construction issue, how well made is the house rather than neighborhood location.

The bottom line is simply that buyers should but the most house they can afford in the best neighborhood they can find in their price range. Commute distance and proximity to the things buyers like to do as well as have to do are strong motivators and that can trump the basic rules of neighborhood selection as well.

The market is tough on buyers now regardless of price range as inventory levels are at historic LOWS. Buyers have to be careful not to be too picky. Fluid conditions that are undesirable may be trending in a positive direction, fixed conditions are unlikely to ever change. Buyers should keep that in mind.

Is the Market Reaching a Ceiling?

Real estate markets locally can reach a ceiling on pricing that doesn't necessarily mean a change in the supply or demand but rather a cileing based on local incomes. Rising prices in our market and in most markets across the U.S. have been driven largely by a low supply of available properties combined with low interest rates. 

But at some point the entry level homes become so expensive that entry level buyers are priced out. During these times you might find a situation where a small 1200 SF house is fetching say $375,000 but just $50,000 more buys a home in the same neighborhood with wide the footage. As prices rise the bottom of the market gets very tight, and that can cause a disproportionate pricing pressure on that segment of the market. 

Furthering the problem is that small one level homes are in demand both by young people starting out and older people downsizing. Those that are downsizing often need the one level as stairs can become a problem for the elderly. This generally means that downsizing seniors will be willing to pay more for those types of homes. Downsizing usually leads to strong offers as the proceeds of a recent sale of a larger home give them a financial advantage over first time buyers as well.

To combat this first time buyers in the entry level market ought look at small two-story homes and townhouses as those are not coveted by the older buyers. There is less market pressure on a 1400 SF two-story house than a ranch style house of the same size.

As we roll into the peak spring listing period, the volume of new listings will be an important thing to monitor for buyers. So far in 2021 we are well under the typical number of listings, that continues to keep pricing pressure under a rapid boil. We may be near an income ceiling however as many buyers are being eliminated from qualifying. That may temper things a bit.

It remains a great time to sell.