The monthly average $/SF for closed listings has behaved like this over the last 6 months:

At just above $284, the current reading is just 2% below where it stood in mid March and there has been little movement since late July. The big jump up in April and the corresponding fall in July can be considered a mini-bubble and corresponding correction. The excessive exuberance has blown out of the market and with the CMI still over 100 and stable, there is no obvious reason for sales pricing to drop lower. That is, except for 2 problems:

1. Interest rates have moved higher over the past 2 weeks and could possibly move higher still, crippling the demand that had started to build while interest rates were closer to 5% than 6%
2. The sales volume has collapsed much more than the pricing.

It is not obvious why the second point should drive prices down. It certainly is bad news for people who depend on healthy sales volume for their income. This includes title company staff, real estate agents and mortgage lenders. However low sales volumes can be a big problem if there is too much inventory in the hands of owners who do not want to own it. This applies to banks after lots of foreclosures. This was the situation in 2006 through 2011, but it is not occurring now. There is very low REO inventory.

However we do have excessive inventory of empty homes in the hands of iBuyers. They continued to buy homes in large numbers during the second quarter and have ended up with far too many homes in their possession during the third quarter. These homes are empty and racking up expenses. Inventory has to be driven lower. The iBuyers are now in an analogous situation to the banks and GSEs in 2008. Excessive inventory can only be solved by disposal of the property. To achieve this the major iBuyer, Opendoor is cutting its prices dramatically. With lots of bargain homes on offer below market value, this is partially succeeding in moving homes from active to pending, but it also has the effect of a lowering average prices for the market as a whole. Opendoor is large enough to be a significant competitor for other sellers. This discounting also has the unpleasant side-effect of lowering the intrinsic value of the remaining unsold inventory.

So even though the CMI is currently stable at a comfortable level around 105, the heavy discounting by Opendoor could drive average pricing lower while it continues. We will look at this in more detail in future observations.

Market insights provided by The Cromford Report.