- 67.0% of current on-market listings are predicted to sell at a discount to their original list prices in Q4 2019, a slight increase from the Q3 2019 prediction, reflecting seasonality
- A slower quarterly rate of change in deals points to a more balanced market: 63.6% of homes sold below original list prices in Q3 2019, up just 1.9% QoQ compared to 5.2% QoQ in Q3 2018
- Southeast and Southwest markets are predicted to see the highest rate of deals in Q4 2019; top 10 markets include Miami (#1), New Orleans (#4), and Las Vegas (#10)
- Western markets continue to be some of the most competitive, but see the highest year-over-year increase in the rate of deals, such as San Francisco at +13.9% YoY
- Deals decline in secondary cities like Austin (-4.3% YoY) and Pittsburgh (-2.2% YoY) as millennial buyers move away from high-priced markets in the West and Northeast
Knock, on a mission to make trading-in a home as easy as trading-in a car, today released the results of the Q4 2019 Knock Deals Forecast, predicting which of 45 of the largest U.S. Metropolitan Statistical Areas (MSAs) will have the highest percentage of homes that sell at a discount to their original list prices, or at a “Deal,” among current on-market listings. The study leverages the same machine learning-driven algorithms Knock uses to help determine the market value of its customers’ homes to predict outcomes far more advanced than most housing industry forecasts. Knock also analyzed the rate of deals among historical sales to determine month-over-month and year-over-year trends in market competition.
“The Q4 2019 Knock Deals Forecast unveiled exciting insights into the combined impact of real estate trends and larger socioeconomic shifts on the housing market and associated opportunities and challenges,” said Sean Black, Co-Founder and CEO of Knock. “While the findings point to the continuation of market balancing Knock saw in the Q3 Forecast, we’ve also identified takeaways on seasonality, regions, and price tiers that will help consumers make more informed real-time decisions as we head into the historically slower winter months.”
The National Knock Deals Forecast is developed using Knock’s proprietary machine learning-driven algorithms that determine expected outcomes for listings currently on the market. The algorithms take into account over 200 characteristic, historical, seasonal, and behavioral data points to determine outcomes like final sale prices for homes it predicts are likely to sell. These algorithms are informed and continuously trained by Knock’s licensed real estate agents. In September 2019, 50% of U.S. homes sold within 1.7% of the Knock predicted final sale price, and 70% sold within 2.9% of the predicted final sale price.
Seasonality Takes Softer Effect as the Market Balances
Knock’s algorithms forecast that 67.0% of listings on the market as of the end of September will sell below their original list prices. This is up 1.6% from the Q3 2019 Forecast, reflecting the expected decrease in competition due to seasonality.
However, year-over-year trends point to a milder reduction in competition during winter 2019. 63.6% of homes sold at a discount in Q3 2019, so Knock’s Q4 2019 Forecast represents a predicted 3.3% quarter-over-quarter increase in the rate of deals. Comparatively, the rate of deals among actual home sales increased 7.5% from Q3 2018 to Q4 2018, more than two times the expected increase in Q4 2019. Historical sales patterns support this trend: Deals increased 1.9% quarter-over-quarter in Q3 2019, compared to 5.2% quarter-over-quarter in Q3 2018.
The fact that deals have been increasing at a slower pace in 2019 does not necessarily mean competition is rising. Knock attributes the change to a balancing of the market as sellers become more realistic about the market value of their homes. Since inventory of existing-homes was down 2.6% year-over-year in August 2019, according to the National Association of Realtors (NAR), one would expect to see more competition and a drop in the rate of deals. However, deals were up 2% year-over-year in August 2019. More homes are being added to the market at list prices closer to current market value, so sellers of homes that have been on the market longer have to consider accepting lower offers if they want to make the sale. As more of these homes are sold and replaced with inventory priced to market value, we see homes selling below their original list prices less frequently.
The balancing of the market is further evidenced by the average discount buyers are receiving off original list prices, up just 0.3% quarter-over-quarter in Q3 2019, compared to an increase of 0.7% from Q2 2018 to Q3 2018. Still, there are discounts to be found. In Q3 2019, 26.3% of homes sold at a discount of 5% or more. Knock predicts that 32.1% of homes will sell at a discount of 5% or more in Q4 2019.
“As seasonality takes hold heading into the holidays, we can expect to see a slowdown in the market, but there will still be plenty of opportunities for buyers to find deals,” said Jamie Glenn, Co-Founder and COO at Knock. “Knock’s Q4 Forecast points to a year-over-year trend in the overall softening of the market that creates even more potential for buyers looking to take advantage of current mortgage rates and decreased competition at this time of year.”
Southern Markets Are Predicted to See the Highest Rates of Deals in Q4 2019
Many of these opportunities are predicted to be in the Southern half of the U.S. as we head into the final months of the year. Six of the top 10 markets in the Q4 2019 Forecast are in the South, including three markets in Florida alone. Miami again tops the markets for deals, with 84.2% of homes predicted to sell at a deal in Q4 2019 after 85.3% did in Q3 2019.
The Southeast and Southwest regions of the U.S. continue to see the highest rates of homes selling below their original list prices. Knock predicts that 70.3% of listings in the Southeast and 68.3% of Southwest listings will sell for a deal, with five of the top 10 markets for deals being in these regions. Western market Las Vegas also joins the top markets for predicted deals in Q4 2019, with 72.0% of homes predicted to sell below their original list prices at an average discount of 3.3%.
Table 1: Top 10 Markets by Rate of Homes Predicted to Sell Below Original List Prices in Q4 2019
|Forecast Ranking||MSA||Percent of homes predicted to sell below original list price||Average predicted discount to original list price|
|1||Miami-Fort Lauderdale-West Palm Beach, FL||84.20%||5.67%|
|3||Houston-The Woodlands-Sugar Land, TX||76.84%||4.81%|
|4||New Orleans-Metairie, LA||76.07%||5.06%|
|5||Hartford-West Hartford-East Hartford, CT||75.71%||4.93%|
|7||New York-Newark-Jersey City, NY-NJ-PA||73.16%||4.03%|
|9||Tampa-St. Petersburg-Clearwater, FL||72.47%||3.75%|
|10||Las Vegas-Henderson-Paradise, NV||71.96%||3.25%|
Interactive Map 1: Q4 2019 Predictions
Deals Rise in the West as Buyers Escape High Prices
While Southwest and Southeast markets continue to see the highest rates of deals, we are also beginning to see interesting shifts in the West in line with overall housing trends. In August, the West was the only region that saw a decline in existing-home sales, according to NAR. It also saw the second highest increase in average home prices among regions, up 5.7% year-over-year. Knock’s analysis also reflects this geographic shift in competition. The Western region of the U.S. saw the biggest year-over-year increase in the rate of deals in Q3 2019, up 4.7%.
Table 2: Rate of Homes Sold Below Original List Prices in Q3 2019 by Region
|Region||Percent of homes that sold below original list price in Q3 2019||Year-Over-Year change in the rate of homes selling below original list prices|
“Many cities in the West that saw increased competition during the recent housing market uptick are now experiencing some of the more significant slowdowns in sales activity,” said Paul Habibi, Economic Advisor to Knock and Lecturer of Real Estate at UCLA Anderson School of Management. “This mild softening of the market seen in Knock’s Q4 Forecast is reflective of other recent studies, and the year-over-year increase in the rate of deals in markets like Los Angeles warrants continued observation.”
Homes that are priced over market value tend to sit on the market longer, which can result in them selling for less than if they had originally been priced to market. Nearly 20% of homes that sold in the West in Q3 2019 were on the market for at least 90 days, and sold at an average discount of 5.2%, compared to 1.9% for the overall region. In a market like Los Angeles, CA where homes are frequently priced $800,000 and above, that difference could have resulted in an additional discount of at least $26,400.
As markets continue to top the list on reports like the S&P CoreLogic Case-Shiller Home Price Indices, which reflect data from two months prior to publication, sellers’ expectations of current market value are inflated, leading to price reductions and eventually more deals. Further evidence of this trend in the West is that the three markets that saw the highest increase in homes selling below original list prices in Q3 2019 compared to Q3 2018 were in the West: San Jose, CA (+22.4% YoY), Las Vegas, NV (+18.7% YoY), San Francisco (+13.9% YoY). Las Vegas in particular has been seeing rapid change and made both the top 10 markets for predicted deals in Q4 2019 and the top 10 markets in terms of Q3 2019 home sales.
Table 3: Top 10 Markets by Rate of Homes Sold Below Original List Prices in Q3 2019
|Forecast Ranking||MSA||Percent of homes that sold below original list price||Average discount/ (premium) to original list price|
|1||Miami-Fort Lauderdale-West Palm Beach, FL||85.29%||6.63%|
|3||Las Vegas-Henderson-Paradise, NV||74.80%||3.53%|
|4||Houston-The Woodlands-Sugar Land, TX||74.37%||4.39%|
|7||Tampa-St. Petersburg-Clearwater, FL||72.20%||4.46%|
|8||New Orleans-Metairie, LA||71.78%||4.95%|
|9||New York-Newark-Jersey City, NY-NJ-PA||70.64%||3.68%|
|10||Dallas-Fort Worth-Arlington, TX||68.26%||3.42%|
A newcomer to the top 10 markets in terms of home sales in Q3 2019 is Dallas-Fort Worth, where deals increased 4.6% year-over-year. Dallas-Fort Worth and fellow Knock Deals Forecast top 10 market Houston are both experiencing Texas’ rapid influx of out-of-state buyers from Western markets like California – some 250,000 of them, according to The Economist. These buyers are attracted to Texas’ booming economy and lower cost of living.
With cash in hand from sales in higher-priced markets like Los Angeles, these buyers could be experiencing greater discounts, contributing to the higher rate of deals seen in Q3 2019. However, as markets like Dallas adjust to these more drastic changes in competition, deals will begin to balance out. The overall 1.6% year-over-year decline in deals in the Southwest in Q3 2019 could be evidence of this starting to take hold.
Interactive Map 2: Q3 2019 Sale Analysis
Higher Prices Create Opportunities and Challenges in Secondary Cities
The Q4 Knock Deals Forecast reflects how higher prices drive opportunities for deals. This is especially true when home sales are analyzed by high, middle, and low price tiers, such as those highlighted in the Case-Shiller Indices. More expensive homes lead Knock’s Forecast in terms of opportunities for deals, at a predicted 70.5% in Q4 2019. This was also the top tier for deals in Q3 2019, with deals on homes priced over $363,740 (Case-Shiller’s definition of High Tier pricing) up 2.37% year-over-year.
Looking at the top 10 markets in terms of Case-Shiller price increases, Knock sees a continued trend in the correlation between price increases and increased opportunities for deals. Two of the top five markets on the latest Case-Shiller Index, Las Vegas, and Tampa, made the top 10 markets on Knock’s analysis in terms of deals among both actual Q3 sales and Q4 predictions.
Tampa is a particularly interesting case study in the impact studies like Case-Shiller have on price inflation. As Case-Shiller’s number three market in terms of price increases as of July 2019, Tampa ranked number seven in terms of homes selling below original list prices in Q3 2019, seeing an average discount of 4.5%. 16.7% of these homes took at least 90 days to sell and sold at an average discount of 9.8%. 22.7% of Tampa homes sold in Q3 2019 were in the high tier range; a discount of 9.8% on a home priced at the bottom of this range results in an average buyer savings of $25,646.
Recent data shows the market-wide impact of homes priced in higher tiers. In March, the U.S. median list price hit $300,000 for the first time in history, according to Realtor.com. Knock sees the impact of these rising prices across markets, particularly in line with the trend of migration from historically more competitive markets to secondary cities.
Markets that stand out in Knock’s analysis of Q3 2019 home sales are Hartford, CT, Pittsburgh, PA, and St. Louis, MO, which were the only three markets out of the Q2 Forecast predicted top 10 that did not make the top 10 in terms of actual sales. Overall in Q3 2019, 63.6% of homes sold for a deal across the U.S., just 1.7% less than Knock’s prediction. These predictions take into account hundreds of data points on recent home sales, pricing trends, and seasonality to accurately predict outcomes for home sales. However, it is difficult to accurately predict more drastic socioeconomic shifts. After validating the accuracy of the analysis and the data in these markets, Knock looked for other evidence as to why the three markets mentioned did not see a higher rate of deals among actual sales in Q3 2019.
Hartford, Pittsburgh, and St. Louis are all markets that have recently been seeing an influx of buyers, particularly millennial buyers, attracted to lower costs of living and either job opportunities or proximity to strong job markets like New York. These three cities have all been identified as some of the top cities for millennial buyers in terms of affordability, according to Redfin. As more millennials begin to enter housing markets like these, competition rises. Take the example of Hartford, where home sales were down 10% and inventory decreased 9% year-over-year in August.
The Q4 Forecast reflects the longer-term impact of this kind of trend in markets like Charlotte. Charlotte has seen a rise in corporations opening headquarters there in recent years and become an attractive option for millennial buyers. In Q3 2019, the market saw just a 2.8% year-over-year in the rate of deals. It also made the top three on the most recent Case-Shiller Indices, reflecting increased competition. It will be interesting to see future data on markets like Hartford as more millennial buyers enter the market.
Charlotte is just one of the markets where Knock offers our unique Home Trade-In. In these markets, Knock uses the same algorithms leveraged in this study to help determine the market value of our customers’ homes and how much they can afford in their next home. By bringing consumers more insights into the true value of homes both in-market and through these Forecasts, home buyers and sellers are able to make more informed decisions. With greater transparency and more accurate pricing through solutions like the Knock Home Trade-In and Knock Deals Forecasts, consumers will be empowered to buy and sell more frequently, increasing overall market fluidity across the U.S.
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 experts and licensed agents that 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, Denver, 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 in 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 482,423 active listings added to the market in the past 16 weeks as of September 27, 2019.
- Market size: 45 of the top 50 largest U.S. MSAs were analyzed; not included due to data sourcing and therefore accuracy challenges are Denver, CO, Milwaukee, WI, Seattle, WA, Sacramento, CA, and Virginia Beach, VA.
- Likelihood of Selling: Knock’s algorithms predict the likelihood of a listing selling during its current listing period as opposed to being withdrawn/removed/closed. If a listing is 50%+ likely to not to sell, its impact on aggregated price estimates is discounted by half.
- 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.
- Regions: Knock defines regions by the following states within each region:
- Northeast: ME, MA, RI, CT, NH, VT, NY, PA, NJ, DE, MD
- Southeast: WV, VA, KY, TN, NC, SC, GA, AL, MS, AR, LA, FL
- Midwest: OH, IN, MI, IL, MO, WI, MN, IA, KS, NE, SD, ND
- Southwest: TX, OK, NM, AZ
- West: CO, WY, MT, ID, WA, OR, UT, NV, CA, AK, HI
Additionally, Knock analyzed data on 482,918 home sales from July 1, 2019 through September 27, 2019 in the same 45 MSAs across various time frames, comparing data from their original listing to data from their sale. These data include the original list price, final sale price and days on market. 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.