Here's the latest installment of Bates By the Numbers, a weekly feature by Boston real estate agent David Bates that drills down into the Hub's housing market to uncover those trends you would not otherwise see. And check out his new ebook, Context: Nine Key Condo Markets.
If you thought over-ask offers would end with the summer, think again.
A review of August closings in nine key condo markets—Back Bay, Beacon Hill, Brookline, Cambridge, Charlestown, Jamaica Plain, Somerville, South Boston and the South End—shows the following:
· 53.7 percent of the sellers accepted offers that were in excess of the list price.
· 52 condos closed at least $50,000 more than the asking price.
· Six condos garnered at least $100,000 more than the asking price.
· A condo, listed at $5.995 million, accepted an offer $255K over-ask.
You may have read that the rise in mortgage rates contributed to a slowing of the sales pace. That may be true—my numbers show July under-agreements in are down versus 2012—but the key to over-ask offers is the lack of inventory. In other words, buyers don't have options, so when they see a good fit, they are forced to do what it takes to secure that condo, which more often than not has meant putting in an over-ask offer.
In general, it is necessary to have—at bare minimum—at least a three-month supply of condos to get anything resembling a neutral market, a market where both buyers and sellers have negotiating cards. And simply put: the fewer the months of supply, the more competition there will be for "For Sale" listings.
Failing to have an inventory that could accommodate demand seems to have begun about eighteen months ago, in February 2012. According to my analysis of MLS data, on Feb. 1, 2012, the nine key markets had 808 condos available for sale. From Feb. 1-29, 300 condos went under agreement; and, as a result, for the first time in a long time the "For Sale" inventory divided by the number of under-agreements in the month slipped below the three-month mark (2.69 months). Additionally, during the rest of 2012, these markets never had more than a 2.18-month supply.
In 2013, demand outstripped supply by an even larger margin. Through the first seven months of the year, the nine key markets failed to have even a 1.5-month supply of inventory. In fact, during the real estate season—April, May and June—these markets had less than a one-month supply. Incredible! When facing so little inventory, the only relevant question your broker may ask you about your buying needs is, "How much over the asking price are you willing to go?"
In August, inventory ticked up to 1.61 months. Before you say "bubble," however, keep in mind we are not even close to being in a neutral market. Common sense declares we really need a lot more condos available for sale to see the light at the end of the lack-of-inventory tunnel.
And is that going to happen soon? I'm skeptical. Where would the inventory come from? If more condos don't come on the market, then the only other thing that could happen to give the Hub a three-month supply of condos is if demand plummets. Of course, no one wants that to happen. Yet, based on the Sept. 1 condo inventory, even if demand dropped a full third below what it was in Sept. 2012, the nine key markets would still have less than a two-month supply of condos.
From what I can see, while you're raking your leaves, Greater Boston condo sellers will still be raking in over-ask offers.
· Our Bates By the Numbers archive [Curbed Boston]