The Return Seasonality in Real Estate?
Imagine taking a snow globe, turning it upside down, and then shaking it multiple times. As you turn the globe upright again, the snow falls back into place, but not immediately. 2020 was much like a snowglobe being turned upside down and continually shaken throughout the year. In terms of real estate, this came with changes of showing policy, attractive interest rates, and in general, a great reshift in housing thinking. Now that we are just about halfway through 2021, it is becoming more clear that the snow is starting to settle, but not always in the places we though it would.
“Will we see a return of seasonality in Real Estate”
This question came to mind recently as we enter into the July 4th holiday weekend, which has traditionally marked the height of the selling season, and after which, I always expected homes to stay on the market a little bit longer. For the past 6 years, I’ve tracked the seasonality of the market by one important variable: The Days to Offer (DTO). I’ve found that this variable most accurately shows buyer activity/buyer demand in real time (or at least a 2 week lag time). In general, the quicker a home goes under contract, the higher the buyer demand is.
The graph above is a great example of the normal seasonality of sales in the market, with the most activity and quickest sales happening from January-June. The dark blue section means a home that was listed in each particular month, under $800K, was under contract in less than 7 days. Light blue indicates being under contract in less than 2 weeks, and the white would mean that a home took over 2 weeks to go under contract. The white portion is important as many of those homes slip into the next month as available inventory.
While there is no one reason why the Fort Collins market follows this pattern, I see a few reasons for this traditional pattern to take place, with the dip almost always happening in mid to late summer. From my perspective, this pattern is dictated by 3 primary items.
Rental Cycles
School Year Cycles
General Travel/Recreation
The important aspect about all 3 of these variables are that they tend to take place in the same months of July/August. It seems that a large amount of travel and summer recreation tends to start right around the July 4 weekend. Add to that, school years, both with the Poudre School district, but also CSU, starting in mid August. Finally, rental cycles tend to follow the CSU school year, with many leases expiring between May-August. So how did these variables fare in 2020 where remote learning was normal, rent forbearance extended leases, and travel was not an option?
Above is the same DTO graph for 2020, and it certainly breaks the pattern that is normally seen in the market. If you look at January-March, it generally follows the same DTO pattern as would be expected from years prior. However, that small dip in April was when lockdown orders took place (cue aggressive snowglobe shaking) with the remainder of the year continually increasing in sales activity. There was no definitive school year change, so families felt more comfortable changing school districs. Renters became buyers as interest rates maintained historic lows around 2.75-3%, and with no travel plans, buyers were able to continue their searches and home buying practices as a national pastime (remember, for a long time, there were no sports to keep us busy, so searching for homes was a great alternative!). From my perspective, the most important aspect of this graph and 2020 is the fact that we never had the seasonal slowdown, in which that inventory that doesn’t sell right away becomes “reserve inventory” for the next month. We effectively purchase nearly all of the “reserve inventory” in the latter months of the year, which led to the frenzied, low supply market of 2021.
Speaking of 2021, here is the DTO graph for the first portion of this year. We are at a critical point in the year as we enter the July 4th weekend; the normal inflection point for seasonality in the market. It somehow seems unfathomable that we will see such a dip in market activity after the first 5 months of the year looking as it did with nearly 80% of the inventory each month going under contract in less than 2 weeks. However, the snow is starting to settle in the globe and schools are back to in-person learning. Rent forbearance regulations are being normalized and rental cycles are getting back to normal. Travel is once again a thing (anyone checked airline flight prices recently? GULP!) While I don’t see our market dipping nearly as low as it did in 2019 on the DTO scale, I do think that we may see a bit of breathing room in the market as we move into the latter months of summer/fall. This will be a welcome sight for potential buyers as the inventory may start to stay on the market just a little bit longer, giving those on tight margins more opportunities to secure a home.
Of course, I’ll be watching the market closely moving into the second half of the year anxiously awaiting what comes next. I’d love to know what do you think will happen in our market moving forward?
