The prime homebuying season is right now!
September and October provides an abundance of motivated sellers and fewer competing buyers, making it the best time of year to shop for a home.
“They deem him their worst enemy who tells them the truth.”
realtors proclaim that it’s always a good time to buy or sell a house because it’s always a good time for them to earn a commission. The reality is there are some times when markets favor sellers and some times when markets favor buyers. It can’t simultaneously be a good time to buy and a good time to sell.
During the housing bubble rally, the housing market strongly favored sellers. Buyer demand was nearly infinite due to the proliferation of toxic financing products, so any seller had multiple offers and buyers resorted to writing sappy letters to convince sellers to select their offer out of the crowd.
When the toxic financing was removed, the market abruptly shifted from a seller’s market to a buyer’s market. The number of motivated sellers ballooned, and the number of buyers collapsed overnight in a thunderous credit crunch. The buyer’s market reached a crescendo in late 2011 when there were multiple sellers for every buyer, and buyers could dictate both price and terms.
Then it all changed again. In early 2012, the inventory dried up due to changes in lender policy, and the buyer’s market quickly transformed into a deep seller’s market with multiple offers over asking price. This continued until mid 2013 when the taper tantrum caused a spike of mortgage rates that removed the frenzied buyer motivation (and ability to finance).
These tidal forces rocked the market back and forth for years, but since mid 2013, the market has been far more balanced, and the shifts between seller domination and buyer domination resumed their more seasonal pattern.
The real estate market exhibits strong seasonal patterns. Since many sellers give up and take their homes off the market during the holidays, the low for sales and home inventory is nearly always the first of January. Inventory and sales generally rise through the year peaking in July or August, then both sales and inventory taper off the rest of the year.
The closing of a real estate deal usually occurs 30 to 45 days after the parties reach and agreement, so for sales to peak in July or August, the negotiations for the sale must conclude in May or June. Since properties are generally showcased on the MLS for 15 to 60 days prior to sale, most sellers list their homes between March and May in order to complete the sale by July or August.
April is a rough time to shop for a home. In April, sellers know they still have plenty of time to complete a sale, and they haven’t had their house on the market so long that they fear missing their chance. Plus, buyer competition is increasing — and sellers know it — so sellers simply aren’t motivated to lower price or offer concessions to make a deal. Most sellers reason that if the current offers aren’t good enough, more offers will come along. Unfortunately for buyers, sellers are often correct in this assumption. Buyers who complete their deals in April generally pay top dollar.
So what is the best time to shop for a house? I believe it’s September or October. Sellers know they missed the prime selling season, and there are still many hopeful sellers keeping their properties on the market. Further, many buyers drop out of the competition because they can’t complete the deal in time to enroll their children in school to avoid a mid-year transfer. Larger numbers of motivated sellers and less buyer competition makes September and October a prime time to shop for a home.
Irvine, Ca based RealtyTrac recently took a big-data approach to analyzing over 32 million single family home and condo sales in the U.S. over the past 15 years. RealtyTrac compared average sale prices to average estimated market value at the time of sale to determine whether buyers paid a premium or bought at a discount.
Based on the closing date of the sale, RealtyTrac broke down the data by month … to identify when buyers historically have realized the biggest discounts. Below are high-level findings of their big data analysis.
The best month to close on the purchase of a home is October
- Out of 2.7 million single family home and condo sales over the last 15 years that closed in October, buyers realized an average discount of 2.6 percent below full estimated market value at the time of sale.
- Following October as best months to buy were February, July, December and January — all fall or winter months except for July, which was a surprise given that conventional wisdom would suggest that is a good time to sell but not necessarily to buy to buy at a bargain price.
- The worst month of the year to close on the purchase of a home is April, when buyers over the last 15 years have purchased at an average premium of 1.2 percent above estimated market value at the time of sale.
There is never a perfect time to buy a house. Considering all the variables that influence market timing, including sentiment of buyers and sellers, one or more of the variables will always be cautionary. I developed a market timing system to review what I believe are the most important mechanical considerations, but my system only considers what’s happening with price. It doesn’t take into account market sentiment, fluctuations in inventory or sales volume, nor does it consider the potential impact of policy changes. I ignore these features partly for simplicity, and partly because their influence is minor.
In my opinion, it’s better to focus on a few key variables than paralyze people by examining minor variables and assigning too much importance to them. That being said, these other variables do influence the housing market in the short term, and that’s why we explore and discuss them daily on this blog. Right now, we enter the time of the year when buyers generally have the upper hand. So is it a buyer’s market?
A buyer’s market?
This is an unusual buyer’s market. In a typical buyer’s market, sellers must compete for the few available buyers by lowering their price. That isn’t happening this time around for two reasons: (1) many discretionary sellers are merely testing the market and not really motivated, and (2) many would-be sellers who are motivated are trapped in cloud inventory and unable to lower their prices due to the large outstanding balance on their loans. The market dynamics favor lower pricing, but I don’t believe we will see much, if any, reduction in sales prices because the sellers who can lower price aren’t motivated to do so, and those that are motivated are unable to do so. It’s a recipe for very low sales volumes.
That being the case, if there is a deal to be found, now is the time to find it.
Happy house hunting!