I’ve been in real estate in Thurston and Lewis County for 17 years, and I’ve never seen a market like this one
We’re in the middle of the Greatest Seller’s Market in History.
- Lowest inventory on record
- Buyers are in a frenzy
- Many homes are selling within the first week
- Multiple offers and bidding wars
- Prices are skyrocketing
In the post, I’ll prove to you that there has never been a better time to sell your home and that the window of opportunity to sell your home for maximum price may be closing.
One way to measure market activity is to look at the number of closed sales. In the chart below, you can see the number of closed sales going back to January 2006. A closed sale is when a buyer and seller complete the purchase and sale transaction and the ownership of the home transfers to the buyer.
Notice the two green circles in the chart below? The one on the left represents the peak of the housing bubble in the mid-2000’s. The one on the right represents the present day. Each data point represents the prior 12 months of activity.
You can see how closed sales topped out in the 5500 per year range back in 2006-2007, then fell down to around 3000 per year as the housing bubble burst. Then we started recovering in 2012 and sales steadily increased and then plateaued in 2018-2019. There was a dip in sales when COVID hit in spring 2020, but since then closed sales have really taken off. Now we’re around 6500 sales per year, which is an amazing amount of closed sales for real estate in Thurston County.
Months of supply
Months of supply is a way to measure the available inventory of homes for sale in relation to the current rate of closed sales. Months of supply is the number of homes for sale, divided by the number of closed sales in the past month. For example, if there are 300 homes for sale right now, and 100 closed sales in the past month, then that would be three months of supply (300/100=3).
Three months of supply is what we would see in a balanced real estate market in Thurston County, where neither the buyer or seller have a pricing advantage. When months of supply is greater than three months, that’s a buyer’s market. When months of supply is less than three months, it’s a seller’s market.
Look at the chart below. We are nowhere near a balanced market. Months of supply in April 2022 was 0.67! This means that homes are selling almost as fast as they become available.
This indicator explains why there are bidding wars, offers in the first couple of days, and skyrocketing prices. We have an extreme supply/demand imbalance. There are not enough homes for sale to keep up with buyer demand. We need more supply! And it has only become more imbalanced in the past year.
Days on the Market
Days on the market is another indicator that shows that we are in an extreme seller’s market. Currently, the median days on the market is only five days. A lot of houses are selling within the first week of the listing. This is much lower than during the 2006-2007 peak, when market time was between 30 days and 40 days. In a balanced real estate market in Thurston County, average market time would be around 45-55 days.
This means that homes are being sold almost as quickly as they are being listed. And looking at the green circle on the right of the chart below, we see that days on the market has flatlined since early 2021 and hasn’t come up at all. This is something I’m going to keep my eye on, days on the market is a good early indicator to watch for changes in the market.
Median Sale Price
And finally, we get to median sale price. This is different from average sale price, and a lot of people get those confused. The median is the number in the middle of the data set. Half of houses are selling above the median, and half below. We use the median sale price instead of average because the average sale price can be skewed by the mix of high price vs. low price homes sold in a given month, which makes average price too volatile from month to month to be a good indicator. So, in housing we use median price.
The median sale price in Thurston County in April 2022 was $510,000! I never thought I’d see median prices this high in Thurston County. Ever.
On the chart below you can see the previous real estate peak in 2007 when the median sale price topped out a little over $250,000. It then fell quite a bit until 2012 when it bottomed out and then started recovering.
When I look at this chart, I notice two distinct trendlines in the median sale price. The green line represents our baseline recovery trend since 2014. But then, in early 2020 when COVID hit, prices started an even steeper climb. The red line shows that price appreciation really accelerated in early 2020. That’s a very steep slope for real estate prices, and the change in slope from the green line to the red line is proof that prices are skyrocketing.
The Window of Opportunity is Closing
This is a historic window of opportunity for you to sell you home for maximum value. How long will it last? With interest rates rising and predicted to continue rising, the window of opportunity may be closing.
I don’t know the answer to that question, but here’s what I do know. This is not 2006-2008, when the market boom was fueled by subprime loans and loose lending standards. This time around it is more about lack of supply. The simple fact is that there are a lot more buyers who want to buy a home than there are sellers who want to sell. A primary contributing factor is the anti-growth mindset of local policymakers, who always pay lip service to affordable housing, while at the same time continually enacting more restrictions that reduce density and make it harder and more expensive to build enough homes to meet demand.
An important thing to keep an eye on here is interest rates. Interest rates have been at historic lows for quite a while, and low interest rates are partially responsible for skyrocketing prices. The Federal Reserve just increased interest rates by half a percent, the largest increase since the year 2000. Experts are predicting that the Federal Reserve will increase mortgage rates seven times in 2022.
When the Fed raises interest rates, mortgage rates generally follow. And higher mortgage rates increase the monthly payment a buyer has to pay, which reduces buyer purchasing power.
Right now there are a lot of buyers who are stretching the limits of their affordability. A buyer that can barely afford a $500,000 house right now will not be able buy that same $500,000 house after seven interest rate hikes.
This will have an impact on the Greatest Seller’s Market in History. The question is, how much? A few buyers will have to drop out of the market, but will it be enough to make a meaningful dent in this huge level of demand we are seeing?
Earn Tax Free Income with the Capital Gains Tax Exclusion
Did I just say “tax free income”? You bet I did! Direct from the IRS website:
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. https://www.irs.gov/taxtopics/tc701
If you have lived in your home as your primary residence for at least two of the past five years, then you can qualify for one of the greatest wealth building tools that is available to the American middle class: The Capital Gains Tax Exclusion.
I’m surprised by how many sellers I come across who don’t know about this. How many other opportunities will you get in life to pocket hundreds of thousands of dollars in gains free from income taxes? Not very many!
But here’s the thing about the capital gains tax exclusion. It exists at the mercy of Congress. Congress created it, and they can take it away. Every once in a while someone in Congress will start making noise about eliminating this tax exclusion in order to help pay for our incredibly bloated federal budget. The threat has never been very serious, but times are changing. The capital gains tax exclusion is a juicy and tempting target for raising revenue, and I don’t think they will keep it in place forever. Who know when this window of opportunity will close?
Take Advantage of This Historic Opportunity
Who knows how long this window of opportunity will stay open? If you’re thinking about selling your home anytime soon, you should act now.
We offer a free consultation and analysis to help you determine whether selling your home is the right move for you. This is more than just a “free market analysis” that any real estate agent can provide. We take a consultative approach, and we see ourselves as trusted advisors, not salespeople. We will go deeper to help you identify and evaluate your options, and bring up things to consider that you might not have thought about already.
Our free consultation and analysis includes:
- Listen to your goals and needs (we listen more than we talk)
- Help you figure out whether selling now is right for you
- Prepare you by setting realistic expectations
- Make suggestions for property improvements, staging, and marketing
- Tell you how much your home is worth and how much cash you’ll get when you sell