The following was written by Cary Sanders, Sales Manager at Coldwell Banker Grass Roots Realty.
- Luxury homes in Western Nevada County are priced at or above $750,000.
- Numbers of new listings and pending sales are up, but closed units are down.
- Activity in the luxury market is divided roughly in half: homes priced $750k – $1M, and those over $1M.
- We continue to be firmly in a buyer’s market for luxury homes, unlike the lower-priced homes. Sellers need to be strategic in their marketing approach.
At our recent Quarterly Meeting for Coldwell Banker Grass Roots Realty, I had the privilege of providing a local market analysis for luxury homes. Luxury homes are broadly defined as being in the top ten percent of value, and for Western Nevada County the value threshold is around $750,000. Western Nevada County does not include the areas around Truckee, which have many higher-valued neighborhoods. When I asked our associates what their take on the current luxury market was, Kurt Congdon replied “It’s mystical.” After he offered his reasoning, I affirmed his description and provided the following statistical analysis as support of that and additional conclusions, which I’m pleased to share with the general public here.
As one can see in the graph below, the last twelve months (through September 2017) have shown a significant increase in available listings over the previous twelve months. New listings are up 14.6% (rolling twelve months) and the number of available homes is up 21.7% year-over-year at the end of September 2017. The number of new escrows is up an incredible 26.1%, but the number of actual closings is actually down a surprising 4.6%. I’ll offer some possible reasons for this conundrum below the graph.
Why can the market be down on closings while being up so dramatically in pending sales?
- The first possible reason is that buyers in all price ranges have been cancelling escrows at higher rates than normal. What’s been happening especially in the lower-priced homes where inventory levels are extremely limited is that buyers jump onto new listings entering the market and write aggressive, competitive offers to win the bidding war. Then the buyer’s remorse kicks in, or they realize the home isn’t exactly what they’re wanting, and they cancel the purchase according to an applicable contingency. Although those market conditions aren’t the same for the luxury market, a higher than expected number of cancellations are happening in the higher-priced homes as well.
- A second, more probable explanation has to do with the timing of the sales activities. In looking at the graph above, one will notice the sharp increase of the red Pended line for September. With 16 pended sales reported, September shows about three average months worth of new escrows. That’s a huge number of escrows that simply haven’t yet had time to close. To quantify this theory, if 90% of Septembers new escrows were to close in October, our rolling twelve month totals would show a 30% increase in closed units. Will the conundrum be solved? We shall know once the sales numbers are closed out over the next couple months.
How are the two halves of the Luxury Market performing?
The median sales price for the luxury market over the last twelve months is $926,750, which means half the sales are below that price and half are over. For the sake of convenience, let’s consider the lower half being residential properties priced between $750,000 and just under $1,000,000. This lower half accounted for 60 of the 87 pended sales (69%) and 42 of the 68 closed sales (62%). Working out the math, eight of those closed sales were between the median price and $1M. To further illustrate the half-way mark is roughly at the $1M threshold, 54 of the 101 luxury properties available at the end of September were offered between $750k and $1M.
The lower half of the market accounted for 12 of the 16 (75%) of pended sales in September, but did not produce any of the month’s five closed sales.
When looking at the last twelve months, the higher half of the market showed much higher growth in units than the lower half. Comparisons of the two halves of the luxury market are graphically displayed below.
PTM = Previous Twelve Months (Oct ’15 – Sept ’16)
LTM = Last Twelve Months (Oct ’16 – Sept ’17)
YOY = Year Over Year
The Luxury Market Continues to Be a Buyer’s Market
This reality is nothing new. The luxury market in Western Nevada County has been a buyer’s market for at least 15 years. However, the months of inventory has noticeably declined over the last four years. From 2008 to 2012, the market was showing over 50 and even 100 months of inventory (MOI). This last year, we’ve been averaging around 15 MOI, which is definitely a move towards equilibrium, but is still most definitely a buyer’s market.
Typically, a buyer’s market will experience price depreciation due to the downward forces of over-supply and under-demand. If home value appreciation is produced in a buyer’s market, it would typically be due to the overall economical forces like inflation. In this luxury market, however, we are seeing price appreciation that is surprising and which cannot be explained by inflation. The graph below shows the growth in the median and average sold prices for all luxury properties in Western Nevada County.
What should sellers do to get their luxury homes sold?
Given the fact the buyer’s are in control of this luxury market, sellers must be very strategic in their marketing efforts put in place with their listing broker. Here are some key points for sellers:
- Be laser focused on the listed price. Rely on the market expertise of your listing agent. Over the last twelve months, the sold price has averaged only 92% of the original listed price. Once price adjustments have been made, the sold price averages to be 96% of the final listed price. You will save yourselves many precious days on market when you offer your luxury home at the market value to begin with.
- Provide amenities that luxury buyers desire. This certainly isn’t new advice, but the buyers’ preferences do change from time to time. One fairly recent addition to the luxury buyer’s wish list is Smart Home Technology.
Luxury Portfolio’s 2017 Global Luxury Report states, “High-net-worth buyers are committed to protecting their property, family and identity through the latest technology, with 76 percent agreeing that having a smart home was ‘very important.’ There will be an ongoing demand for luxury inventory that incorporates the latest technology, security features and flexibility for modern multi-generational living, the research found.”
- Coldwell Banker is the only real estate brand to have partnered with technology and smart home industry leaders to provide Smart Home Certification to its brokers and agents and resources, including a Smart Home Kit, to its associates and clients to elevate our luxury home listings to be noticed and pursued by buyers in this crowded marketplace. Click on the Smart Home Icon to the right to learn more about this distinct advantage.
- Support the current initiative being spearheaded by Invest in Nevada County for our County Supervisors to opt Nevada County into the California Proposition 90 network. Prop 90 allows residents over 55 years of age to move here and to transfer their old property tax base. Currently, many luxury buyers are choosing to retire to El Dorado and Tuolumne counties which participate in Prop 90. By not participating in the proposition, Nevada County is losing quality people, their extended families, and their spending and sales tax dollars that could help propel our county to continued financial stability and growth. Luxury home sellers of Nevada County need more luxury buyers to balance out the supply and demand forces and promote a healthy market.
- Engage the services of a true professional and pledge mutual commitment. Your Coldwell Banker Grass Roots Realty associate is dedicated to your success. Marketing a luxury home requires special skills and devoted resources provided exclusively by our Coldwell Banker Global Luxury division. Mutual commitment includes a time component to get the job done: partner with your listing agent for at least nine months to ensure the strategic marketing efforts and expenses will result in a successful sale.
Let us hear from you! If this market analysis of luxury homes in Western Nevada County has provided you good insight, please give it a thumbs up below. Post any questions or comments you have. Luxury buyers and sellers will do themselves a favor by contacting a Coldwell Banker Grass Roots Realty associate to help them achieve their goals.