Written by Cary Sanders, Sales Manager at Coldwell Banker Grass Roots Realty.
- The Luxury Home Market (priced at or above $750,000) showed the biggest gain in units sold, with an increase of 59.2% year over year (last twelve months vs. previous twelve months).
- The last three months (May – July 2018) showed an incredible increase of 145% in new escrows versus the same time last year for luxury homes.
- The mid-priced market ($450,000 to $749,999) has also experienced good growth with 43.7% more pended units and 22.8% more sold units over the last three months compared to 2017.
- The only price segment of the Western Nevada County residential market to falter is the low end (under $450,000).
The Residential Market as a Whole Continues to Appreciate
While available inventory in most price points (all except the luxury market) continues to increase gradually, the residential market for all homes below $1,000,000 is a seller’s market. The forces of low supply and high demand continue to cause price appreciation.
The graph below shows the overall number of units for sale (available at the end of each month), sold (closed escrow), pended (opened escrow), and newly listed over each month of the last two years.
The visible trend is that inventory (the light green bars) is increasing while demand (the red pended line) remains high. The overall number of sales is slightly down (0.8%) year over year.
The natural effect of supply and demand forces has caused housing values to continue to appreciate. Overall, the average sold price for July 2018 was $478,000 with the median sold price being $425,000. Over the last three months the average sold price has increased 9.6% over last year, while the median price has increased 11.9%. The rolling twelve-month average (the average prices over the last twelve months compared to the previous twelve months) shows a similar pattern: a 9.6% increase in the average sold price and a 9% increase in the median sold price.
How active are the different price point segments?
Before we analyze the market’s performance at various price points, it’s important to know that the bulk of sales continues to be under the average sales price. For this analysis, we’ll separate the market into three price segments: under $450,000 (“the low-end market”), between $450,000 and $749,999 (“the mid-range market”), and from $750,000 and up (“the luxury market”).
Over the last twelve months:
- The low-end market produced 875 sold units.
- The mid-range market produced 459 sold units.
- The luxury market produced 113 units.
Luxury Home Sellers Enjoy a Mid-Summer Night’s Dream while Entry Point Buyers Struggle
Even though the low-end market (under $450,000) is the largest segment of the market, it has produced lower numbers of new listings (-2% Year over Year*), new escrows (-14% YoY), and closed sales (-14% YoY). The available inventory (the number of active listings at the end of each month) has consequently increased quite a bit (22% YoY), although this segment is still a seller’s market.
[*Year over Year = August 2017 – July 2018 compared to August 2016 – July 2017.]
LTM = Last Twelve Months (August 2017 – July 2018) | PTM = Previous Twelve Months (August 2016 – July 2017)
Here are some possible reasons that demand for the entry point homes has fallen:
- Interest rates have risen. The lower-income buyers are naturally the most vulnerable to being priced out of the market by resulting increases in monthly mortgage payments.
- Interest rates experienced the highest volatility during the Spring months, which is typically the busiest time in our local real estate market. The months of March through June in 2018 produced 24% less new escrows than compared to the same time span last year.
- Low affordability rates seriously threaten the Nevada County real estate market along with all of California. The appreciation in real estate that has happened over the last several years has squeezed out more and more first-time buyers every year.
- Investor buyers may be pursuing investment opportunities other than the real estate market. Unfortunately, no data is available through our Multiple Listing Service to indicate the type of buyer (owner-occupant or investor). However, given the recent success of other investment avenues and the fact that home values are near their all-time high due to sustained multi-year appreciation, it’s reasonable to think that investors might be shifting away from real estate.
The mid-range market (between $450,000 and $749,999) has experienced significant growth in all areas: new listings, pended sales (new escrows), sold units (closed escrows), and available inventory. Growth in this segment can be attributed to a couple factors:
- The appreciation in home values over the last several years has pushed units from the lower end market into this mid-range segment.
- Homeowners in this segment have regained most of the equity they had before the market crashed. According to local appraiser Brian Melsheimer of the Sierra Nevada Appraisal Group, home values in Western Nevada County are at approximately 92% of the peak values of early 2006. You can read his detailed analysis here. With the equity levels nearing the previous highs, homeowners are able to move that equity into higher priced homes or simply move along with their life plans instead of being stuck upside-down in their current homes as was the case for many years.
The biggest surprise this year is the growth experienced in the luxury market (homes priced $750,000 and up). The number of sold units has increased an impressive 59.2% over the last twelve months (LTM) compared to the previous twelve months (PTM). There has been an even higher increase recently in new escrows, as the number of pended units has more than doubled over the last three months. May through July of 2018 produced 49 pended units compared to 20 over the same time period last year. This recent activity should result in an increase in sold units even higher than the current figure pushing 60%.
As seen in the above chart, available inventory has increased in all but the highest priced homes. The number of available units is the reported number of listings with the active status on the last day of the month. Even with this increase in available units, every price segment is currently in a seller’s market, except for homes priced at or above $1,000,000.
Months of Inventory is a theoretical calculation that shows how long it would take for us to sell all currently available inventory (without new inventory entering the market) based on the current rate of sales. Typically, anything less than six Months of Inventory is considered a seller’s market, and anything over six months is considered a buyer’s market. As this chart shows, all price points under $1M are currently in a seller’s market. It is a recent development for the $750k to $1M market to get below 6 Months of Inventory, and it stands at 5.1 MOI at the end of July 2018.
What should Savvy Buyers and Sellers Do with this Information?
Buyers, if you’re waiting for prices to drop, you’ll be waiting for a long time. Some economists think that there might be a market correction around the year 2020, but other experts do not see any fundamental factors currently in place that would lead to a correction. Act now before appreciating prices and higher interest rates price you out of the market. Trust your professional’s advice and be ready to move quickly when a desirable property comes on the market.
Take advantage, home buyers, of the slightly larger inventory to find the home you’ll fall in love with, buy it, and lock in your housing payments for thirty years.
Sellers, leverage the current conditions to capture the most equity you’ve been sitting on for a long time. That being said, you can’t be greedy and price your home higher than the market will bear. Otherwise, your home will languish on the market, and you’ll grow tired of keeping your home in its model-home-like showing condition while buyers choose other, properly-priced homes. As your advocate, I can help you understand the fair market value, develop a custom marketing strategy, and help you make a move as easy as possible.
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This analysis of residential properties in Nevada County is based on reports published August 2018, based on data available at the end of July 2018. All reports presented or referenced are based on data supplied by the Nevada County Association of REALTORS® or its MLS. The MLS does not guarantee or is not in any way responsible for their accuracy. Data maintained by the MLS may not reflect all real estate activities in the market. Information deemed reliable but not guaranteed.