As the first quarter of 2017 ends, there is a sense of déjà vu in the Des Moines real estate market. But if you look closely, you’ll notice some small differences compared to last year.
Homes For Sale Inventory
Over the past 5 years, Des Moines MLS home inventory levels have continually dropped. The 1st quarter average for 2017 has remained below 3,000 while just 4 short years ago we had an average 1st quarter inventory of 3,800. That’s almost a 25% reduction of homes for buyers to choose from. While low inventory of homes makes it more difficult for buyers to find that home, it hasn’t necessarily resulted in a slowdown of activity. At the end of March, the Des Moines Area Association of REALTORS® listing inventory fell below 2,900 for the first time in my record keeping. This is resulting in some areas having no homes for sale at all in certain price ranges.
Pending Sale Counts
The number one leading indicator of market activity is Pending Sales. When Pending sale counts approach or exceed the Active home inventory levels, supply outpaces demand. To measure this activity, we calculate the monthly supply of inventory by dividing the number of homes currently for sale by the number of homes that went under contract (Pending) during the previous 30 days. This ratio is called the Months of Inventory and tells us how long it would take to completely run out of homes to sell if no new listings came into the market pool.
Typically, all we need to watch is the level of Pending sales to know the markets pace, but something interesting is happening in 2017. It has been reported nationally that home sales are beginning to slow down. My initial reaction was “not in our market!” but after watching my daily trending stats of Pending sales, I began to see a change. Near the end of March, there was a definite lag of Pending sales compared to the same period last year. It’s not much, but because Pending counts are such a powerful indicator of future market activity, I felt compelled to dig deeper and find out what is causing this dip and if our market is indeed slowing.
Home Pricing at the Time of Offer Acceptance
Investigating the Pending sale data, I discovered that as this year began, Pending sales were slow to start but quickly picked up by mid-January. From that point through mid-March, data was almost identical to last year. In the middle of March there was a distinct slowing of Pending sales and that continued for about two weeks. The common denominator to the slow start and the mid-March dip was home pricing at the time of offer acceptance. As the Median home price spiked going into the month of March, the number of sales began to slow. The median price of a home for sale in March was just under $200,000, $10,000 more than the same time last year. The local real estate market is in some ways regulating itself. When pricing reached a certain threshold, home buyers pulled back and the market began to slow.
I predict that we will see this same type of market throughout the spring and summer months as the rise of home list prices push the upper limits of buyer affordability. The one thing that we did not have to deal with in 2016 was the rise in mortgage interest rates. 2017 has already seen the Federal Reserve raise the prime lending rate and although the recent changes haven’t automatically put mortgages out of reach for buyers, it has made them cautious. Mortgage lenders are also beginning to make credit more available by lowering the minimum credit score requirements. This is adding even more buyers to the already full buyer pool and with record low inventories, the deeper we fall into a Sellers Market.
As we move into the 2nd quarter of 2017, closed sales are slightly ahead of last year and months of inventory levels are already below the 2-month mark. The median closed purchase price is hovering around $175,000 and days on the market falling towards 70 days. In many of the lower price points the days on market number is a week or less.