Mar. 30, 2009 - Home Prices "Bottom" - % variance asking to sold

At the peak of the market, the % variance between asking and sold prices was zero. At points where the price of homes on market is higher than the market will bear, that % variance increases to almost 6%. In the chart below you can see that this variance is often eradic and the percentage from Asking Price to Sold Price usually decreases along with Days on Market and % of sold property that sold in less than 30 days, as we saw in the previous posts.

At the point I noticed a dramatic shift in the market, there was a drop in prices AND an increase in the % variance between those lower asking prices and sold prices. In the chart below, focus on the green line which is the subject of this post. I will break out the overlay blue and red lines below it.

In early 2007 you see the % variance fluctuating between zero in the Spring period and as high as 2.4% coming into "Spring Bounce". Once we passed the peak, the variance shot up to 4% almost instantly, but at the same time you see the blue line of asking prices trying to stay flat in a declining market. As the blue line decreases in November of 2007, the variance decreases as well from 4% to 1.8%. This means that the homes sold at 98.2% of the asking price vs 96% of the asking price.

The lowest of prices is achieved not simply because the asking prices reduce, but when the asking price reduces and the buyers pay substantially less than those asking prices, both at the same time.  What we can't readily see are concessions in those asking prices, which can alter the results by as much as 6%, but more commonly up to 3%.

The peak period would also have the fewest number of concessions.  So the difference between zero and 4%, especially as we get into the middle and end of 2008, can actually be substantially higher.

The above prices are converted so that I could do the overlay in the first graph. 4.8 equals $480,000.  The asking prices for this market segment range from $429,000 at bottom to $585,000 at peak. But it is what happens with the green line in the first graph that actually controls the outcome.

Again, in order to overlay the median price per square foot in the first graph, I converted $240 per square foot  to 2.4. The price per square foot in the above grapth ranges from $208 at botton to $299 at peak. In order to stabilize the sample, I took an area that was relatively cohesive and limited the square footage of the homes to not more than 3,000sf.  I also excluded lake and mountain view homes to eliminate the appearance of a market increase in months where more or less view property is sold.

As  a final step, I Adjusted the Median Price Per Square Foot to the average median home size of 1,944sf to eliminate the variance of months where the median square footage of a home sold was 1,830 vs. 2020.

It might seem odd that studying peaks and bottoms is not about actual prices.  Determining the flow of the marketplace is like looking at the Dow vs. the Technology Sector or your holding of Microsoft stock specific.  You have to find the general flow of the marketplace in order to know if your area is over or under performing.

I will note here that the market sampling for all of these posts of yesterday and today have very few short sales or bank owned property sales, less than 10%.  More on that in the final wrap up post that highlights the shift period exclusively.

(required disclosure) stats hand compiled by ARDELL and not compiled, published or verified by NWMLS.