Market Overview – October 2014
The Missoula residential real estate market has been on the rise over the last several months, providing significant clues that Missoula has been trending toward a more stable market. While there has been a seasonal decline the number of homes actively listed and homes sold over the last few months, the market is performing better this year than in the same months of the last couple of years. With a steady stream of buyers actively looking for homes to purchase, homes are staying on the market an average of 3.5 months before being sold. Though sales will continue the seasonal decline, we believe if additional homes become available there are still buyers out there to absorb them.
By the numbers:
- October sales were down 6.3% from September
- Approximately 84% of homes sold in October were under $350,000
- Average home prices were 2.4% higher than in the same month last year
- Average list-to-sale price has been at 97-98% for well over a year
- Absorption rates are still favorable for sellers and are running slightly faster than a normal market
- Total number of homes on the market is 385 with an additional 141 homes under contract
Buyer Recommendation: Despite the slight decrease in homes on the market, there are buyers out in the market looking and sellers whose homes are competitively priced continue to entertain multiple offers and are selling very close to asking price. Prior to beginning or resuming your search, we recommend that you be prepared with a loan pre-approval letter and ready to look at and make an offer on the good homes immediately to avoid possible multiple offer situations. Average lender rates for mortgages have been increasing steadily and, if rates continue to rise, we anticipate a downward pull on affordability for buyers in the market for a new home. Be prepared to pay 97-98 per cent of asking price, on average.
Seller Recommendation: With inventory starting to decrease a bit we recommend putting/keeping your home on the market, especially since there are currently plenty of buyers in the market to absorb any increase in inventory. However, while it seems it is still a seller’s market and average sold prices could increase a little during this time, it is still very important to list your home with a reasonable and competitive price.
The health of any real estate market can be recorded by absorption rates, which is the correlation between the number of active homes on the market and the number that sell per month, on average. According to the National Association of Realtors, a normal market is six months of inventory – whereas anything over 6 months indicates a buyer’s market and anything under 6 months indicates a seller’s market. For the purposes of this discussion we are utilizing a 3-month average for sales.
The Missoula market continued to perform at a slightly faster pace than a normal market, producing an overall absorption rate of 4.5 months in October, compared to 4.6 months in September. While sales have slowed since August, homes are still selling faster than in a normal market where it takes approximately 6 months to sell a home. Overall absorption rate history for the last four years is presented in the following graph.
A low absorption rate in your price range may indicate an opportunity to list your home at a higher price and, conversely, a higher absorption rate in your price range may put downward pressure on your market value. The following graph demonstrates absorption rate by price range. Absorption rates in the yellow range show which homes are selling faster than a normal 6-month market and rates in the red range are selling slower. Absorption rates falling within the green range show homes that are selling very near the “normal” 6-month timeframe.
With absorption rates ranging between 2.0 and 5.0 months, on average, homes in Missoula priced at or below $350,000 are being absorbed at a much faster rate than 6 months.
Average List-to-Sale Price
List-to-sales price, the ratio of the price at which a home sells to the price at which it was listed, signifies pricing trends in the market. (For example, if you sold a home for $100,000, sellers are, on average, accepting offers of $96,000 – $98,000, or between 2 and 4 per cent less than asking price.) When inventory increases, average list-to-sales prices generally decrease due to added competition in the market. When lower list to sales prices are seen, usually in the summer months, it can be attributed to high absorption rates, primarily because during these months there are more homes on the market, meaning more competition. In that scenario, motivated sellers might have to take less for their home in order to beat out the competition.
For the last year, list-to-sales price has been better than in prior years – hovering between 97 and 98 per cent. The lowest list-to-sales ratio in the last year was in May 2013, when sellers averaged 96 per cent of asking price. In the summer months following, the percentage moved up to 98 per cent and has remained relatively consistent. List-to-sale price this October averaged 97 per cent.
The following graph provides the average list-to-sale price, by month, for the last three years:
Overall Short-Term Market Outlook
With more active listings on the market and under contract numbers remaining steadily high, it is evident there are buyers actively looking for homes to purchase. Based on inventory levels, sales, absorption rates, and our own experiences, we believe we have been experiencing a normalizing market in Missoula.
With low inventory in the beginning of the year buyers had little to choose from, so when a good home that was priced well was listed, sellers were entertaining multiple offers and signing contracts with buyers at near asking price. Over the summer inventory increased and, despite the typical seasonal decrease in homes for sale, remains healthy as fall settles in. Based on the absorption rates it is clear there are plenty of buyers in the market and homes are selling quickly and sellers are still getting very close to asking price. That being said, buyers still have limited options compared to years past, thus creating the possibility of a seller getting an offer close to asking price.
Qualified buyers that are prepared to buy are looking to purchase a reasonably priced home. Sellers whose homes are competitively priced continue to entertaining multiple offers and are getting very close to asking price or more than asking price. Sellers are currently closing the sale at an average of 97 per cent of asking price.
Full PDF Copy: October 2014 Missoula Residential Market Report