Sales as a Percentage of Listings are Down in a Big Way in ’19

Sometimes it is necessary to create a metric to support an assumption based on one’s experiences. The experience in question is that in 2019 a lot of listings are not selling. The metric I created is sales as a percentage of listings (SL Percentage). This is calculated by dividing the number of sales since the start of the year by the number of the new listings since the start of the year plus any sales that were listed prior to this year, but sold this year. In other words a higher percentage would indicate that most listings are selling and a lower number would indicate that more listings are not.

The result of this is quite telling. The year to date SL percentage in 2019 in Playa Vista (according to the MLS) is 44.5%. This is a decline of 17 points since last year when the SL percentage YTD as of November 13 was 61.5%. What’s even more startling is that the SL percentage in Playa Vista dropped even more from 2017 to 2018 (from 84.6%, a near slam dunk to sell in ’17). What is the reason for this dramatic drop and and why is it not being talked about?

What is being talked about is that the market has shifted. Yes, it has, but prices have only dropped slightly and some listings are still receiving multiple offers. The biggest reason is the massive disconnect between sellers, who are clinging to values of 2017, and buyers who believe they can scoop up a deal. It’s really painful seeing money go down the drain, even if it is unrealized home equity. The increased inventory has also led to less buyer urgency and longer house hunting times due to more properties to see.

Another reason for this is the fallacy of price per square foot being a reasonable valuation metric for all occasions. This has come up in a previous blog post and while $/SF can be useful in comparing large samples of like properties, it is the often misused metric by home sellers and their real estate agents. Under no circumstances is an otherwise similar 1,800 SF two bedroom property going to have as high of a price per square foot as a 1,200 one, however quite a few listings attempt this, and while the market may have been more forgiving two years ago, today they do not sell.

The abundance of Phase II listings are also dragging down the SL percentage. For 2019 YTD, phase II (defined as built 2014 or later) has an SL percentage of 33.7%. These properties were hot when they came out and appreciated quickly, but are now not seen as a good relative value compared to homes elsewhere. The reluctance to part with quickly earned (on paper) wealth is why only 1/3 of Phase II listings have sold this year.

It remains to be seen when the market will soon resume a positive trajectory or if it will get worse before it gets better. Many businesses have moved to the area and the employment base is strong. Playa Vista is an awesome and unique community. Interest rates are low, the stock market is strong, and jobs are plentiful, so what could possibly get better. There is clearly buyer demand out there. One thing is clear: realistic pricing and understanding the market in this more challenging environment is more important than ever.