I ran a CMA (Comparative Market Analysis) the other day for someone. The CMA revealed what I call an inverted pricing cascade. That is, when looking at the pricing of the Active, Pending and Sold listings, the lowest average prices and prices per square foot for this particular neighborhood started with the Active listings, next was the Pending, and then the Sold listings were the highest priced. This is a symptom of a neighborhood where prices are dropping.
Normally, in a rising market, it’s the other way around; Actives are priced higher, followed by Pending, then the actual Sold listings have the lowest prices. This is because as homes sell, the sold prices justify higher listing prices and thus the Actives and Pending lead the market in pricing. Each home that sells for a higher price justifies the next listing to be priced higher, and thus prices move up over time. The result is, when I scan a “rising market” CMA report and move down the page looking at the pricing of each category, I see a “cascade” of price ranges, falling from the Active (highest priced) to the Pending (middle priced) to the Sold listings at the bottom. When it’s headed the other way, I call that an “inverted” pricing cascade.
So what does it mean if this normal progression is turned around? It means, plainly, that the average price for the neighborhood I was looking at is headed down. It means, as a seller or listing agent, you have to look at more than just the Sold pricing, you have to look at the Active and Pending listings and wonder why it is that your competition is all priced at what seems to be BELOW MARKET (based on Sold comps), yet none of them are selling. It means you have to get underneath your competition in pricing and above your competition in condition.
I ran CMA stats for many other neighborhoods, and this inverted pricing cascade is not widespread, but I did find other neighborhoods where it exists in varying degrees. Other areas are still showing strong sales and rising prices. If it spreads though, we could see prices flatten out in coming months, especially if the demand remains weaker due to buyer pessimism and stricter loan standards.
Is this good news or bad news? Neither. The market is what it is. Buyers have a bit more breathing room than last summer, and sellers have to be a bit more flexible if the home is not already priced right. The homes priced “in the market” are fewer than the homes priced “out of the market” overall, so there will be a rise in failed sales efforts, as I’ve already documented in a recent blog article. But a lot still depends on location, price range and condition.