How will your home sales volume fare in 2023?

  • Lower than 2022 (74%, 31 Votes)
  • Higher than 2022 (14%, 6 Votes)
  • Level with 2022 (12%, 5 Votes)

Total Voters: 42

2023’s burgeoning spring buying season is breaking up the ice jam in the housing market, transforming 2022’s glacial sales into a lukewarm springtime puddle.

Yes, the home price dive experienced since May 2022 has somewhat leveled off, and home sales volume is inching higher on a monthly basis. But other indicators tell the real story: today’s brief cyclical reprieve from the effects of the housing market recession is just that.

As evidence, seller price cuts and days-on-market continue to escalate across California.

For April 2023, the share of listings with a price cut has increased to:

California’s only major metro with a lower share of price cuts is Sacramento, which saw 14% of listings receive a price cut in April 2023, down from 17% a year earlier, according to Zillow.

Axiomatically, more price cuts indicate lower competition among buyers for the homes available on the multiple listing service (MLS).

Editor’s note — firsttuesday does not adjust for seasonal influences. We compare a month’s data with data in the same month in prior years, which already reflects results of the annual cyclical seasonal influences. If we did adjust for seasonal influences, you would see the manipulated result as lower from the prior month’s sales.

Also pointing to reduced competition is the rising number of days-on-market, with the average listing spending significantly more time on the market before receiving a pending status.

Here in California, the average days-on-market as of April 2023 has jumped to:

  • 34 days in Los Angeles, up from 18 days a year earlier;
  • 30 days in San Francisco, up from 16 days a year earlier;
  • 44 days in Riverside, up from 17 days a year earlier;
  • 24 days in San Diego, up from 13 days a year earlier;
  • 27 days in Sacramento, up from 13 days a year earlier; and
  • 37 days in San Jose, up from 17 days a year earlier.

Simply put, fewer homebuyers-per-listing are shopping today, even with a reduced MLS inventory of homes for sale.

Related article:

Fewer new listings as California’s for-sale inventory dips

Sticky price sellers

Homebuyers who actively search today do so despite a mountain of obstacles, including:

  • higher mortgage rates which have slashed the amount they are able to pay, termed buyer purchasing power;
  • a weakening economy, with the next recession likely to arrive in the second half of 2023 (already laying heavily over the housing market); and
  • sticky prices, as sellers are slow to adjust to buyers’ pricing needs controlled by mortgage lending.

The sticky price phenomenon stems from sellers’ reluctance to accept the reality that their property values have declined below the peak values of earlier months. After all, if their neighbor’s house sold for a high price in mid-2022, why can’t the seller expect the same high value now, in 2023?

These sellers are stuck in their own bubble — unwilling due to their money illusion to accept facts and price their home appropriately upon listing. Without a realistic initial listing price, their homes sit for longer on the market — gaining a sticky stigma — and eventually undergo a price cut or else are simply pulled from the market for several years.

Ultimately a waste of time for the sellers agent, these sticky price sellers are also mucking up the broader real estate market.

The BPO for setting the price

The best way to avoid a long and dwindling listing is to set the listing price right the first time.

To achieve this, the agent conducts and present to the seller their broker price opinion (BPO), documented by a comparative market analysis (CMA). [See RPI Form 318]

The BPO report includes data collected and analyzed by the broker — agent — which substantiates their opinion of the property’s market price — its fair market value (FMV). The FMV of a parcel of real estate, given as a dollar amount, is typically determined based on the sale of comparable properties or application of the appropriate capitalization rate to the particular property’s net operating income (NOI).

Factors used in the evaluation process to determine a property’s market price include:

  • demand – the number of buyers for the property;
  • utility – the property’s possible uses;
  • scarcity – the availability of similar properties; and
  • transferability – the seller’s ability to transfer good title to a buyer clear of all encumbrances itemized in a title insurance policy.

Collectively, these are known as the elements of market price, memorized using the acronym DUST.

However — while certainly important to the seller — factors not used to determine a property’s market price include the present owner’s:

  • acquisition cost;
  • property taxes;
  • listing price;
  • mortgage financing; or
  • equity in the property.

The seller who needs to sell the property may take some convincing to accept their property’s present value and price the listing accordingly. But using a CMA and documenting real-world sale numbers will certainly help avoid the pitfalls of an interminable listing.

At the macro level, the housing market won’t find a recovery until sellers come to their grips and price their listings at an acceptable level to attract buyers. firsttuesday forecasts this recovery will arrive sometime around 2026, following a bottoming in pricing around 2025 which will return home values to the mean price trendline.

Related article:

Market price influencers for a BPO report