Price Reduction - Race to the Bottom
Usually I would cover the second quarter of the year in this issue. But because of the big changes that have occurred in the past few weeks I have delayed that until the next newsletter.
Unlike the stock market which can have major swings in minutes the real estate market usually takes months to show patterns of change. But the first 2 weeks of July have made such a big swing that I need to report to you what is going on right now. In a matter of a few weeks sales have taken a major drop. And with the bad news of inflation at over 11% we can expect a large interest rate hike from the fed next time they meet, or possibly even sooner if this continues. This will only make things worse. The good news is that gas prices have finally started to stabilize and even go down. Which should help with inflation. Also the job numbers were higher than expected, so not all news is bad news. For now the bad news and higher mortgage interest rates have won the minds of real estate buyers. This is evident in the fact that sales and prices have gone down for primary homes, so of course sales and prices are going to go down faster here in Big Bear because we are primarily second homes. So, how bad is it? Normally I don't use pending sales as data for tracking the Big Bear market but in this case pending sales are the best window for what is coming. Let's take a look at a few graphs.
The pending sales for July 1-15. We have 11 pending sales, with two of those over $800,000. When we look at the first graph we have overall sales vs listings. We can see in 2022 sales of April 120 May 94 and June 100. These number should be going up. Look at 2020 and 2021. In 2020 we had sales of April 52 May 98 and June 196. In 2021, April 152 May 156 and June 169. Let's just use June. In 2020 we had 196 sales, in 2021 we had 169 and 2022 we had 100. These sales were the pending sales 45 to 60 days before they were sales. Where the market started to slow down. With the pending sales of the first two weeks of July at only 11 and assuming that went to 25 by the end of the month and escrow periods were 45-60 days, August sales would be about 25 which is 75% lower than June. As a comparison looking at the first graph August sales last year were at 169. As we can all see that is a drastic jump.
If we look at the next graph, the 0-$800,000 market we can see a steady decline in sales for the second quarter and the normal increase in listings. With the decline in sales expect the proportion of listings to increase over last year which will bring prices down even more. In the next graph the $800,000 + market sales were holding steady until July. With the reduction in sales and increase of listings there will be bigger pressure to have prices drop.
Let's take a look at what kind of price reductions there are in the current listings. Currently there are 386 listings, 289 0-$800,00. Of these 144 or 50% have price reductions averaging $40,000. Last news letter we had 37% with price reductions averaging $30,000. In the $800,000+ market we have 97 listings of these we have 35 or 36% with price reductions averaging $205,000. Last news letter we had 75 listings with 45% averaging $117,000 price reductions. So price reduction dollar amount is going up.
So what is the future. For at least the next 6 months we are going to try and find a bottom. The problem is that there is going to be a race to the bottom. We are going to have more listings available. The current listings are going to continue to reduce prices and the new listings are going to come on the market at a reduced price. Sellers who need to sell will list or drop their prices the fastest to attract the limited amount of buyers. How far do prices need to go in order to attract buyers in today's market? That will be determined by how long and how severe the economic down turn will be. If current conditions continue you may see prices decrease another 15-30%.
