How Are Sellers with the 2-Year Itch Faring?

Posted by Dave Fratello on Sunday, October 7th, 2007 at 5:19am.

It was a long morning for MBC (the 10k) and a long day around the fair, but we do a have an update to offer you before the weekend's out.

Some time ago we ran a story about home sellers looking to cash out after just two years in their current residences ("Getting the Two-Year Itch"). We also ran this update a few weeks later.

As we noted in the first installment, one reason folks may be selling at the 2-year mark is to draw the maximum tax-free profit:
Thanks to our tax code, you can reap up to $500k in capital gains (for a couple) on a home sale tax-free. You just have to have made it your primary residence for 2 years.
To which we say, more power to you.

The real purpose of tracking like this is to watch for market price trends. This is roughly how the respected Case-Shiller index works – they track same-house sales over time in several markets and use those, rather than median price or PPSF, to gauge degrees of change.

In our case, we have a still-small sample, but the results are becoming intriguing. (Click the graphic to enlarge; if that isn't legible, click here for the 1-page PDF.)

We have 24 examples of two-year itchers, of which 11 remain active listings, 10 are pending or sold, and 3 dropped out.

Let's look first at the 10 solds, which might begin to tell us: How has the market changed in 2 years?

Of the 5 biggest gainers (16%-61%), 3 were major remodels. One more (132 18th, +25%) was in an outstanding location on one of the city's best streets. And one (2500 Pacific, +16%) was actually purchased in 2005 for well below its VRM asking price range. In 2005, you didn't see many cases of people paying 20% below asking. Of the 5 big-gainers, only 18th St. offers a reasonable answer as to general market trends – and even they took $245k off asking this year.

Four more sold homes, which remained much the same over 2 years, rose in value by 7%-16%. (One is pending.) With more data, the range of 7-16% would be a good answer to the question: "How much did homes increase in value over the last 2 years?" Right now the data are mainly suggestive.

The 11 active listings show us a group of sellers that largely began by seeking much more than 7-16%. (Note: We are showing the start prices only in the chart, to track how good or bad sellers' guesses were of their homes' increased value.)

The full range of price increases sought is 11%-79%, with the +79% house being a big remodel.

All of the actives have been on the market at least 90 days, some significantly longer. (For details please see the MB Market Update spreadsheets.)

The headline coming out of this group is large, nearly-new 3011 Elm (click for details), which is now listed for less than the 2005 purchase price. Elm (pictured) began May 2 at $3.095m (+$295k/+11%), but on Thursday it re-listed at $2.795m, $5k less than the July 2005 price. These folks apparently need to get out.

Similarly, 601 Larsson is now listed below the Sept. 2005 purchase price – by $151k. (That's no headline because MBC readers know too much about that house by now.)

Most of the rest of the actives now show reduced ambitions (price cuts), but there are obstinate ones:
  • 505 3rd has never shifted price from $1.949m (+$349k/+22%)
  • 1400 Elm is down only slightly at $2.295m (+$595k/+35%)
  • 1313 Oak is down $100k, but still seeks $2.390m (+$865k/+57%)
We're going out on a limb here to say that 20% to 50% markups aren't going to draw a lot of interest in the market that's evolving now.

MBC notes the contrast between folks selling after 2 years – most will make money – and the examples we gave last week of sellers getting out after 1 year, most of whom will lose. Even with small samples, these contrasting stories may tell us that our local market's price peak was between 1 year and 2 years ago.
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