- Forecast points to accelerated movement toward a buyer’s market: Knock predicts 75% of current on-market listings in 42 top U.S. Metropolitan Statistical Areas (MSAs) will sell below original list prices in Q2 2019, after 72% sold below original list prices in Q1 2019 – a 7% increase year-over-year.
- 7 of the top 10 markets where homes are forecasted to sell below original list prices in Q1 2019 are in the South, with Miami at number 1, followed by Houston and New Orleans, and Southwest market Phoenix joins the top 10.
- Miami was also the #1 market in Q1; 88% of homes sold below original list prices, in line with the Knock forecast of 89%.
Knock, on a mission to make trading-in a home as easy as trading-in a car, today released the results of the Q2 2019 National Knock Deals Forecast, predicting which U.S. markets will have the highest percentage of homes that sell below their original list prices, or at a “Deal,” heading into Q2 2019. Knock also analyzed actual deals among Q1 2019 home sales, and how these compared to the predictions made in the Q1 2019 Forecast.
“As we head into Spring Homebuying Season, I’m extremely excited to release our second National Knock Deals Forecast of where home buyers across the U.S. can find savings – whether in their current market or as they make the move to another city,” said Sean Black, Co-Founder and CEO of Knock. “Our findings will help more buyers take advantage of opportunities for savings that can make a life-changing move possible for them and their families.”
Knock conducted a machine learning-based analysis of over 200 data points related to current on-market homes to determine which of the largest U.S. MSAs will have the highest percentage of deals heading into Q2 2019, and how that compared to both the Knock forecasted deals and actual home sales in Q1 2019. In February, 70% of U.S. homes sold within 3% of the Knock predicted final sale price, and 50% sold within 1.7% of the predicted final sale price.
The Shift to a Buyer’s Market Accelerates
Knock forecasts that 75% of current on-market listings will sell below their original list prices heading into Q2 2019. While this is lower than the Q1 2019 Forecast of 77%, it reflects a significant year-over-year increase that is in line with the upward trend in deals over the course of the past three months. In Q1 2019, 72% of homes sold below their original list prices, representing a 7% increase over Q1 2018.
“The Q1 Forecast, which may have seemed to be a big jump over 2018, was actually much closer to the reality of home sales in Q1 2019 than home sales at the same time last year, or even at the end of 2018,” said Jamie Glenn, Co-Founder and COO at Knock. “It’s clear that we’re at an inflection point in the shift to more of a buyer’s market, and the Q2 Forecast provides insights into where and how buyers can capitalize on that.”
Knock also analyzed sales by the percent they varied from original list prices, accounting for typical price fluctuation due to marketing tactics and negotiations, which the analysis qualifies as homes selling within 2% of the original list price (between 2% below and 2% above original list price). In Q1 2019, 59% of homes sold for at least 2% below original list prices, which was 5% more than predicted and an 8% increase over the same time period last year.
Overpricing Takes Its Toll in Hot Markets
As the market cools, we see a widening of the gap between list prices and sale prices both for accurately-priced and overpriced listings. While a home may have been priced at market value when it was first listed in December or January, that market value may have changed, creating more opportunities for buyers. This difference is even more extreme among homes that have sat on the market, particularly if they were originally priced too high. After years of price increases, many sellers’ expectations have not caught up with the market. They continue to unrealistically overprice their homes, which can lead to extended days on market and create a stigma around their property, eroding their perceived value and leading to greater savings for buyers.
This is the case even in hotter markets. For instance, in the latest S&P CoreLogic Case-Shiller Indices, Phoenix was one of the top three cities in terms of year-over-year price gains. However, Phoenix is also one of the top 10 markets on the Q2 Forecast, with 80% of homes predicted to sell below original list prices. In Q1 2019, 73% of homes sold below original list prices, and 56% sold at a discount of 2% or more, up 5% over Q1 2018.
34% of Phoenix homes that sold in Q1 had been on the market for at least two months. 92% of these homes sold below their original list prices, compared to 73% of the overall market. 52% of these homes sold for 5% or more below their original list prices, compared to just 28% of all homes sold in Phoenix in Q1. That means a savings of $12,500 or more on a $250,000 home. Knock predicts 72% of current on-market listings will take at least two months to sell; 31% of current on-market listings have already been on the market for two months or longer.
“As the cooling of the market starts moving West, Phoenix is just one example of how the combined effects of a shift to a buyer’s market and continued overpricing will take their toll in the form of more savings for home buyers,” said Paul Habibi, Economic Advisor to Knock and Lecturer of Real Estate at UCLA Anderson School of Management. “Given the accuracy of the Q1 National Knock Deals Forecast, buyers who have been challenged by affordability can look to these predictions for insights into how a home purchase might be possible for them this Spring home buying season.”
Deals Head South for Spring Buying Season
Phoenix is just one example of the overall Forecast’s shift South: Seven out of the top 10 MSAs for deals in Q2 2019 are predicted to be Southern markets. In addition to Phoenix, Houston, New Orleans and four markets in Florida make the list.This is an increase over the five out of 10 Southern markets that made the top 10 in Q1 2019 both in terms of predictions and actual sales.
Knock’s prediction that the number one market for deals in Q1 2019 would be Miami was in line with actual sales. Knock forecasted that 89% of homes would sell below original list prices, and 88% did in Q1 2019. Average days on market of Miami homes sold in Q1 2019 were 82, which plays a role in driving the high rate of deals. 79% of homes sold for at least 2% below their original list prices, even higher than Knock’s prediction of 74%.
Orlando is another newcomer to the top 10, with 80% of homes predicted to sell below original list prices in Q2 2019. This aligns with the Q1 2019 prediction of 79%, as well as with actual sales at 78% deals, which is an increase of 5% over the same time last year. While not one of the most affordable housing markets to live and work in, Orlando, like other Florida markets, is desirable for retirees and other out-of-state buyers, who are attracted to the state’s lower tax rates and warmer weather for both primary and secondary residences. Particularly as spring home buying season takes hold in the North, buyers can expect to see decreased competition for homes in some of these overpriced Southern markets, creating more opportunities for deals.
Table 1: Top 10 Markets Where Listings Are Predicted to Sell Below Original List Prices in Q2 2019
PREDICTED PERCENT DEAL|
(As of 03/24/2019; listings added in the past 16 weeks)
|AVERAGE PREDICTED DISCOUNT/(PREMIUM) TO ORIGINAL LIST PRICE||AVERAGE PREDICTED FUTURE DAYS ON MARKET|
|New Orleans, LA||82.64%||5.30%||27.89|
|St. Louis, MO||78.40%||4.40%||21.90|
Seasonality also plays a role in some Northern markets like Pittsburgh and Cincinnati dropping off the top 10 as we head into the second quarter of the year. While the difference between the rate of deals in some markets is relatively small, allowing for easy movement up and down the ranking, there were a couple of interesting outliers in terms of actual home sales in Q1 2019. New York, for example, saw significant out of state migration in Q1 2019, perhaps contributing to 78% of homes selling below their original list prices. This was in line with New York’s predicted rate of deals, also at 78%, but the market jumped to number eight in terms of actual sales from its predicted spot of 20.
Perhaps the biggest surprise of the analysis was that Houston, TX dropped from its number two predicted spot to number 13 in terms of actual Q1 2019 home sales. This is also a significant change from the same time period a year ago, when it would have been number four on the list. There are a couple of factors that could account for this variation. For instance, the area saw a 7.5% year-over-year increase in the middle market of price ranges in February, a highly competitive range with less opportunity to find deals. This is somewhat unexpected for that time of year. Additionally, price increases were relatively flat, up just 1.4% year-over-year, which may mean fewer opportunities for negotiation on less overpriced homes. Still, in line with historical and seasonal patterns and days on market holding steady, Houston holds the number two spot again in the Q2 2019 Forecast, with a predicted rate of deals revised down from 84% to 83%.
Table 2: Top 10 Markets Where Listings Sold Below Original List Prices in Q1 2019
HISTORICAL PERCENT DEAL|
|AVERAGE DISCOUNT/(PREMIUM) TO ORIGINAL LIST PRICE||AVERAGE DAYS ON MARKET|
|New Orleans, LA||80.95%||6.21%||70.01|
|New York, NY||77.95%||5.04%||72.03|
61% of home sellers are also buying their next home at the same time, according to Zillow. One of the greatest roadblocks to market fluidity is these consumers’ inability to afford their next home while selling their old one. By providing them with transparency into pricing patterns and insights into where they can find the best deals through regular national Knock Deals Forecasts, Knock aims to help more sellers move into their next home more quickly, increasing inventory and overall market fluidity. Knock already provides these insights to both buyers and sellers in the markets it is currently operational in – Atlanta, Charlotte, Raleigh-Durham, Dallas-Fort Worth and Phoenix – in the form of its unique Knock Deals Home Search Tool and associated alerts.
Knock (www.knock.com) is the first online Home Trade-in platform, a revolutionary new approach to home buying and selling that makes it as easy to trade-in your home as it is to trade-in your car. Launched by founding team members of Trulia.com, the company uses data science to price homes accurately, technology to sell them efficiently and a dedicated team of Licensed Experts to guide consumers through every step of the process. Knock has raised over $600 million in debt and equity, closing its Series B in January 2019, from top tier investors including RRE Ventures, Foundry Group, Redpoint, Greycroft, Corazon Capital, Correlation Ventures, Great Oaks Venture Capital and FJ Labs. The company has offices in New York, San Francisco, Atlanta, Charlotte, Raleigh-Durham, Dallas, Fort Worth and Phoenix, with several more on the way.
Knock trains a suite of machine learning models on historical real estate data going back three years. The models, trained on 200 features across the top U.S. Metropolitan Statistical Areas by population size, are able to predict listing outcomes such as the likelihood of selling, the selling price, when various price drops will occur and by how much, and how long it will take to sell. These models take into account seasonal trends, long-term market trends, and hyperlocal information, inclusive of the real-life pricing activities of individual real estate agents, to make their predictions.
To understand what is happening at the market level, the probable outcomes for each listing are aggregated over all the listings in a market to produce what is likely to happen for the entire market. In order to predict the proportion of upcoming deals to expect in each market, Knock predicts the probability of a listing selling at various levels below the original list price. We also adjust these aggregated probabilities by the likelihood that the listings will sell. These probabilities are then aggregated within each market resulting in a market-wide prediction. Additional factors:
- Time Frame: Predictions are based on 435,114 active listings added to the market in the past 16 weeks as of March 24, 2019.
- Market size: 42 of the top 50 MSAs were analyzed; not included due to data sourcing and therefore accuracy challenges are Baltimore, MD, Milwaukee, WI, Minneapolis, MN, Philadelphia, PA, Seattle, WA, Sacramento, CA, Virginia Beach, VA and Washington, DC.
- Outlier filtering: In order to remove price changes that are likely due to typos or unusually priced listings, we remove listings from our calculations where the price has increased or decreased by two-fold. This removes about 0.1% of the listings.
- Home type: Study includes single family homes (attached, detached, condo); excludes land sales, mobile homes, income properties, multi-family properties, foreclosures, short-sales, new construction.
- Price band: Study includes homes in the $50,000-$5,000,000 range.
- Days on market: Knock measures these as the difference between list date and pending date.
Additionally, Knock analyzed data on 239,105 home sales from January 1, 2019 through March 24, 2019, as well as 314,842 home sales during the same period last year, in the same 42 MSAs across various time frames, e.g. year to date, by month, etc., to determine trends in homes selling below original list prices, and how they compare to the Knock Deals Forecast predictions. Data for both the predictive and historical analyses sourced from ATTOM Data Solutions.