Spring Housing Scoreboard: While homesellers in Chicago are taking steep price cuts, Bay Area homes are selling quickly at near asking price.
With the arrival of the spring/early summer homebuying season, homes prices nationwide have showed signs of strengthening. The FNC Residential Price Index® (FNC RPI™) – the industry’s first hedonic price index built on a comprehensive database that blends public records with real-time appraisals of property characteristics and neighborhood attributes – shows modest gains in March and April, each at a seasonally unadjusted rate of 0.6%. Moreover, preliminary estimate of the latest RPI reveals that the index is up again in May, further evidence that the housing market is gaining traction amid rising demand and tight inventory.
The seasonal uptick has also been picked up by other leading market indicators. Since February, the average listing price discount – the percentage difference between the final sale price and owner’s asking price – has dropped rapidly, down from 10.3% in February to 7.1% in May. The chart below shows the discounts measured against owner’s initial listing price as well the listing price in effect just before the sales. Using the listing price just before the sale, the average discount in May is 2.6%, down from 3.8% in February.
Source: FNC National Collateral Database
Across individual markets, there are wide variations in owner’s listing price discount. Median price discount for the nation’s top 30 MSAs are charted below based on the latest completed sales of single-family homes and condominiums. Also charted below is median time-on-market (in days) observed on the sales.
San Francisco shows the smallest price discount in May: the median home is sold at exactly the final listing price, or merely 1.5% lower than its initial listing price. In Sacramento and Las Vegas, median homes are also sold at their listing price, or the equivalent of 3.4% and 5.0% discounts from their initial listing prices. Homesellers in Chicago, on the other hand, are seen taking the largest price cuts: 16.3% discount from initial listing price or 5.1% from final listing price, both of which are more than twice the size of the national average.
Meanwhile, for-sale homes in the San Francisco area spend the least time on the market despite the small price discounts that sellers are willing to offer. In May, median time-on-market among the homes sold during the month is about 3 months (100 days), compared to 9 ½ months (286 days) in Chicago. Relatively quick turnovers are also observed in Denver (101 days), Washington, D.C. (110 days), and Phoenix markets (117 days). Two other Midwestern cities, Cleveland and Kansas City, trail Chicago only slightly in the measure: 230 days and 252 days, respectively.
Normally, one would expect a large price discount to attract more potential buyer interest and thus likely to expedite sales. However, a significant positive correlation (0.78) between time-on-market and listing price discount is observed instead. One possible explanation is that when homeowners set price expectations that lag behind the market and are slow to match the prices to market, it will take more time as well as larger price adjustments to make a sale.
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