De-listings: Going beyond the data

Check your favorite news site, and it’s virtually guaranteed you’ll find a dozen articles written about housing affordability this year. The real estate market has been in no uncertain terms… turbulent. We’re still coming back down to reality after the unprecedented few years of low cost borrowing during the pandemic. Home sales have slumped while home costs have skyrocketed. And overall, in most markets, inventory has returned to pre-pandemic levels. 

Despite this, there’s still a lot of buzz about housing shortages driving up costs. And it’s undeniably true. More than 60% of all current mortgage loans have rates below 4% and this presents a unique challenge. Most of these owners are “locked-in” to their rates, as the costs of borrowing have increased to the point where they could no longer repurchase their same home if it was on the market today. The result? A lot of homeowners who won’t or simply can’t sell anytime soon. 

But that may be about to change. Last week, the Fed voted to reduce rates by half a percent, the first cut in over four years. This signals that borrowing costs are about to get cheaper. Mortgage rates preempted the cut, falling to an average of 6.09%, the lowest seen since early 2023. If rates continue to decline, many people, including those owners who are currently “locked-in” by their low rates will likely become buyers and sellers. In a perfect world more inventory and cheaper rates solves the issue completely. But there’s a little more to the story that isn’t being discussed, and I have a suspicion that it could complicate the conversation around inventory and costs. I’m talking about delistings, homes that failed to sell, and have been taken off of the market for one reason or another. These de-listings offer some pretty telling insight into what sellers should expect in the coming months, even as costs begin to come down. 

Why don’t homes sell?

The real estate market is dictated by supply and demand. More supply and less demand = prices decreasing. More demand and less supply = prices increasing. But there are still plenty of factors that can make a home fail to sell, even when supply is low and demand is high. 

Price

Price and value are often used synonymously, but in the world of real estate, they mean drastically different things. Simply put, price is how much a thing costs. In this case, a desired price is how much a seller wants to earn for their home. Value on the other hand, is what the home does for a buyer. Does it have a good school district? Does it have a pool? Is it functional? Does it suit their needs? A buyer makes their offer based on value, rather than price. When a listing price outweighs the perceived value of the purchase, there are only two options. The first is for the price to be reduced to be in-line with the value a buyer is putting on the home. The alternative is to pull the home from the market until a time in which the desired price and perceived value align. 

This gap is something many sellers are struggling to bridge. In Jacksonville, the sold to list ratio has fallen in recent months. Currently homes are selling for 94.1% of list price on average*, meaning that seller’s have cut tens of thousands off of the original price in most situations before finding a buyer. 

We’ve also seen that homes priced even 4-5% above their competition are more likely to be delisted after failing to sell. Buyers are looking for value, and with affordability tight, buyers are looking at the cheaper homes in a neighborhood first, especially when features are similar. 

This data, both statistical and anecdotal, paints a picture that there aren’t many bidding wars occurring anymore. Sellers who find a buyer at or near list price, are usually willing to go with that buyer, and sellers have begun to get used to the idea of slashing prices whenever a listing goes stale. 

Condition

In the height of the pandemic, everything was selling. And I mean everything. If it had 4 walls and a roof, there was a buyer who was ready and willing to fix it up, just to get a deal. That hasn’t been the case in recent months, at least from my observations here in Jacksonville. Homes in need of significant repairs are far more likely to de-list, or at the very least suffer significant price cuts. 

I followed one home closely, which had major foundation damage in a difficult part of town. During the pandemic, buyers would have been lining up around the block. But in the current market, it went pending half a dozen times with unrealistic buyers who backed out of the deal, all well below asking, before eventually being pulled from the market altogether. And it’s not an isolated incident. 

Buyers today are already facing higher costs of purchasing, and higher costs of maintenance. The last thing they want to do is make repairs or updates immediately after a major purchase like a new home. Construction material costs have risen steeply in the last four years, with things like ready-mix concrete and construction brick up more than 30%. It’s creating an expensive, double whammy, and the evidence points to buyers deciding to avoid that pain altogether. 

Instead, the homes that are selling the fastest, and are the least likely to fail to sell, are homes in updated, live-in ready condition. Buyers are putting a greater emphasis on new roofs, updated electrical, new plumbing, new AC’s, updated kitchens, and other expensive items that they don’t want to have to replace in the first few years of homeownership. 

Ease of access

Another surprising cause of homes delisting? The ease of showing. This is one I’ve seen firsthand, many times, especially over the past few months. Buyers aren’t looking to jump through hoops in order to view a home and put in an offer. Like most forces, they follow the paths of least resistance. 

Owner occupied homes with limited showing windows place a burden on buyers to adapt their schedules to fit the seller. This is fine when the market is red hot, but in a cooler market like we’re seeing right now, there’s not much motivation when other homes in the area can be viewed on their time. 

Pets and junk can also really hinder a sale right now. Buyers aren’t excited to wade through isles of belongings, wondering what’s underneath, or endure a barking dog for the entirety of their walkthrough. Again, not when there are options available where this isn’t the case. 

Having a clean, accessible, and ideally staged home not only increases the number of buyers putting eyes on it and scheduling showings, but also helps increase offer prices, ensuring sellers earn a little more from their sale. 

 

The Takeaway

Affordability and a shortage of housing units are undeniably causing some strain in the current real estate market. The Fed’s recent rate reduction is a good first step in helping bring the costs of ownership down, but there’s still a huge question mark around what it will do to inventory. 

Hopefully, as more buyers are able to enter the market, more sellers will seek opportunities to make lifestyle changes of their own, bringing more previously unseen inventory to the market. But there’s a chance that a huge influx of buyers exacerbates the inventory problem, bringing back bidding wars for the most desirable homes, and actually decreasing affordability instead of helping it. 

Ultimately, overpriced homes in poor condition are still going to suffer. Even if the bidding wars return, the buyer mentality around ease of access and the updated qualities they are looking for in their purchase are unlikely to shift significantly without some serious pressures. 

Sellers should prepare themselves for a longer listing timeframe, and they should take careful consideration regarding any updates or repairs they plan to make, and how they plan to market and show their home. There’s still plenty of transaction volume, even here in Jacksonville, but it requires some effort to set yourself up for a successful sale. Go into it with that mentality, and no matter which way the wind shifts, you should be ok. 

** NEFMLS Monthly Market Summary August 2024 

The thoughts opinions expressed within this content are solely the author’s and do not reflect the opinions and beliefs of this website or its affiliates. Always consult a real estate professional.