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It’s hard to know exactly what’s going on in the real estate market today.
Wall Street is all over the map, interest rates climb and fall and rise again, and inflation continues to linger — all of which leaves homebuyers and sellers uncertain of where the market stands.
Those factors have translated into market activity that’s challenging for real estate agents to predict, spurring Coldwell Banker Warburg President Frederick Warburg Peters to coin the term “tornado market” to describe a phenomenon where one property trades hands briskly while a similar property languishes on the market, presumably with little rhyme or reason.
“You can easily see property A sell quickly with multiple offers while property B, which is very similar, seemingly gets no attention whatsoever — that’s the tornado part,” Peter told Inman following the brokerage’s third-quarter New York City market report, which was released this week alongside several other New York-based brokerage reports. “A tornado can touch down and completely obliterate one house, and two houses down, they’re untouched.”
In addition to that attribute, there are likely more crucial factors at play when it comes to specific properties now, agents said. Namely, two homes that at face value may seem very similar might actually be further apart in terms of condition or uniqueness, and because some homesellers are still feeling aspirational when it comes to price — despite the market’s slowing — they might unknowingly be dissuading buyers from their properties.
“There’s two things that could go on,” Susan Abrams of Coldwell Banker Warburg told Inman. “A property can be unique — it may be a condo in a location where there’s not an awful lot of condo inventory, and all of a sudden, somebody builds a condo and many buyers want that, and so that will sell briskly in the right location, priced within the right range or maybe even priced in a luxury range. But it’s special and you don’t often find a property like that.”
“The other thing I think happens is, even though you may think a property’s the same, you can have the same exact property in the same exact line in the building and one is in complete disrepair and one is renovated and their prices aren’t all that different,” Abrams continued. “And the renovated one gets way more interest than the un-renovated one in this market, where people have supply chain issues and inflation issues and they don’t really want to renovate, which sits idle.”
That scenario often arises when a seller insists on a certain list price for their property when the agent has advised otherwise, Abrams noted. Unfortunately, it often ends up in a hard lesson learned for the seller, who should have listened to their agent to begin with. Once they end up dropping the price to what matches the quality and degree of uniqueness (or lack thereof) of the property, that’s when the tornado has a chance to strike.
Or, for those who prefer a different comparison, it’s like dating, Abrams said.
“I always say it’s like the girl who doesn’t have any dates and then all of a sudden, she gets multiple,” she told Inman. “I’m way past dating … but I remember when I was in that phase of my life, I felt like, ‘Oh my god,’ and then all of a sudden, you know, it would all happen at once.”
The data released this week coming out of New York City certainly reflected a market that seems to be taking a breather. Across all property types, new contracts were down 32.2 percent year over year, SERHANT. reported, with one-bedroom units making up the largest share of contracts on both condos and co-ops.
Peters suspected that the tornado market was having an especially significant impact on higher-end markets right now during the nation’s transition as a whole, and luxury agents in Los Angeles confirmed the phenomenon in their market.
Data from Douglas Elliman and Miller Samuel likewise reflected a market slowdown with newly signed single-family contracts down 37.8 percent year over year and newly signed condo contracts down 42 percent year over year in Los Angeles County in September 2022.
Mia Trudeau of The Beverly Hills Estates said the discrepancy in which properties sell and which don’t right now boils down to the details, whether that’s the views of a specific condo unit or the pedigree of a building’s architect. For single-family residences, it could be a property’s acreage or just how much privacy it affords.
“You have a lot of really gorgeous homes that are in the hills here, but they’re on quite small pieces of land and you’re quite close to your neighbor,” Trudeau said. “So depending on the amount of privacy that’s offered, there can be a really big setback when it comes to a specific property not offering as much privacy, even though it’s an amazingly tricked-out home.”
Kofi Nartey, of Globl Red, echoed Abrams’ thoughts on homebuyers who are unwilling to work on their new homes because of persistent supply chain delays and inflation and directing their attention to move-in-ready properties.
He added that homesellers who are behind on price trends as the market shifts was also a huge factor driving the tornado market where he’s based in Beverly Hills.
“Often the price is the No. 1 factor in terms of something moving faster in this market, because obviously the market is correcting and softening,” Nartey said. “But we also have interest rates that have been creeping up, so buyers are more picky consumers of what they’re going to buy because now they’re being stretched even a little bit further in terms of affordability …”
“When sellers are now pricing their properties, you have to price ahead of where the market is going or you’re going to be stuck playing catch up,” he added. “Pricing ahead of where the market is going is sometimes pricing either on par with some of the properties that have sold or even slightly less than where similar properties have sold because that’s where the market is now as part of this correction.”
But, what’s one more cause for those miscellaneous properties not getting much buyer attention? An agent who may not be doing their job right, Trudeau and Nartey both noted.
“It actually does tie into strategy,” Nartey said. “Strategy around showing properties and marketing properties and creating buzz and utilizing social media, and all the tools we have at our disposal.”
But for those properties where the agent isn’t the problem, Peters said it’s hard to say exactly when the real estate market might move into more predictable territory, but he suggested it may still be a good wait.
“I think it really depends on what happens with the stock market, what happens with interest rates,” he said. “I think that there are a number of factors over which a civilian like me has no control that are going to end up determining that … And so, I think it’s just challenging for everyone to figure out value in the transitioning market. And that’s why there is this element of unpredictability that feels a little tornado-ish.”