Is it possible to predict the future? Most people would say no, but then again, in real estate we are able to do predictive analytics to give us a fairly accurate picture of the direction in which the market is headed. Looking at two key metrics, Average List Price and Average Sale Price, for a particular period as compared to the same period the year prior can give us a good estimate of what will happen to prices moving forward.
Analyzing the listing and sales data and looking at average prices I’m able to tell whether the market is a Buyers’ Market or a Sellers’ Market. The data also tends to reveal some soft spots in the market that could be sources of great real estate opportunities. We can assess the overall health of the market by looking at how close sales prices came on average to the Average List Prices for the area. The closeness in the numbers indicates a market favors both buyers and sellers.
If the average sales price decreases far below the Average List Price it indicates that buyers have more negotiating power over sellers. This usually happens when there are too many homes on the market compared to the number of buyers ready, interested and able to buy.
When the average sales price increases beyond the Average List Price, this indicates that the market is experiencing heightened competition amongst buyers. In this state of the market sellers have the advantage.
Using 5 years back as a benchmark, let’s see what the numbers are telling us about the state of the market in Pinecrest today in 2017.
July 2012 saw an Average List Price of $1,625,000 compared to $2,249,000 in July of 2017, an increase of 38 percent. The Average Sale Price $1,012,000 in July 2012 compared to $1,385,000 in July 2017, an increase of 37 percent.
While the casual observer would find that the 2017 numbers have increased versus 2012, it’s important to look at the gap. The difference in the July 2012 Average List Price and Average Sale Price is 37.7 percent, while the difference in the July 2017 Average List Price and Average Sale Price is 38.4 percent. This clearly indicates that seller pricing strategies are not currently in line with buyer demand, which ultimately causes the market to slow in its pace.
In the five-year period between July 2012 and July 2017 there have only been two instances where the Average List Price and Average Sale Price came within less than 10 percent difference of one another: the last quarter of 2014 at 5 percent difference and the last quarter of 2015 at 8 percent difference.
That last quarter of 2015 also corresponds to the last peak of the real estate market, with an average of $390 per Sq. Ft. amongst sold properties.
Since then the Gap has widened again and the average price per Sq. Ft. of sold properties was down to $325 for the last quarter in July 2017.
2014 and 2015 were the years that also averaged the highest number of transactions. The affirms the assertion that when the Average List Price and the Average Sale Price have a smaller difference between them there is a greater amount of sales activity in the market.
Looking in a more recent timeframe, the Average List Price of $2,249,000 was down 3 percent compared to last month, but it rose almost 8 percent to $2,090,000 compared to last year. The Average Sale Price of $1,385,000 was up 6 percent from last month and down 17 percent to $1,662,000 from last year.
The increasing inventory of properties listed above $3M has pushed up that average active price over the last five years substantially.
The market is a living thing and its movements are subject to what the participants in the market will support. The difference between the Average List Price and Average Sale Price can change over time. Once the market seemingly reaches equilibrium that balance can shift to a lower or higher price range. The good news is, unlike the stock market, the real estate market tends to experience less volatility and longer trends over time, making it a safer investment in the long term.
Another metric, the Average Median Price tells us where much of the activity in the market is occurring. Average prices can sometimes be skewed by large sales, but the Median Price remains unaffected by such occurrences. As a professional with a great deal of experience in the Pinecrest real estate market, I find these sales and omit them from my analysis to reach a more accurate average.
Looking at Median Prices, if you compare the last quarter of 2017 to the last quarter of 2013 we find that the Median Price has risen from $804,000 to $1,185,000, which is an increase of 47 percent.
We had three periods where we experienced peaks in the market. The first was in late 2013 where the Median Price was at $1,200,000. The second was in late 2014 at $1,556,000. Lastly, late 2015 at $1,695,000.
As of July 2017 the Median Price was up 4 percent at $1,125,000 vs. June 2017. However, it was down 8 percent compared to July 2016, which was at $1,224,000.
Following the numbers and statistics helps us make more educated decisions, and also makes sure that we keep our expectations in line with what the market will support. There will always be ebbs and flows in the market from external factors such as the larger national economy, foreign investment, and other international influences such as currencies, politics and global economics. One thing will remain certain: Pinecrest has a lot to offer…space, schools, parks, security, and an ideal location. Buyers will never lose interest in Pinecrest, but if sellers want to make a sale now, they’ll have to align their pricing strategies with what the market will bear.
