Trend Indicators: Days on Market, Sale-to-List Ratio, Price Direction and Seasonality

Months of inventory describes where a segment stands. It does not say which way the segment is moving, and a listing priced for where the market stood three months ago enters a market that may have moved since. Direction is read from a set of indicators, and the indicators are not equal: some register a change while it is happening and some register it only after the closings have recorded it. Which is which changes how a market analysis is read, because a statement that “prices are up four percent” can be true of the last quarter’s closings and false of the contracts being written this week.

Days on market

Days on market is the number of days the MLS counts between the listing date and the date the listing’s status is changed to pending, or in some MLS conventions the closing date. The status change can be entered days after the contract date, the date the contract was signed by both the buyer and the seller, so the count is a record of the listing rather than an exact measure of exposure. Two details matter. The first is which listing date is used: a property withdrawn and relisted, or relisted with a new number after an expiration, shows a short count on its current listing and a long count on its cumulative history, and the cumulative figure is generally closer to the market’s reception, with the listing history checked for gaps or a new listing number that restarts even the cumulative count. The second is that the segment’s figure is a median, not an average, because a few listings that sat for a year pull an average away from what the typical property experienced.

Days on market is a lagging indicator. The count stops when the status change is entered in the MLS, which may lag the contract date, and it describes the weeks before that date. The days on market of the segment’s current active listings, read today, is a nearer indicator: when the actives have been sitting longer than the recent pendings took to reach a contract, the pace has slowed.

The sale-to-list ratio

The sale-to-list ratio is the sale price of a closed sale divided by its list price, expressed as a percentage. It is computed for closed sales only, because the contract price of a pending is not known until the sale closes. A sale at $412,000 on a list price of $425,000 is a ratio of 96.9 percent. Which list price is used matters. Against the final list price, after reductions, the ratio shows how the last price was received; against the original list price, it shows how the market received the seller’s first position. A sale at $412,000 that was originally listed at $449,000 has a ratio of 91.8 percent against the original price, and the 91.8 is the figure that describes the listing’s history. The office records both.

Because the closing generally follows the contract by a month or two, the ratio is a lagging figure. Grouped by contract date rather than closing date, it shows what buyers agreed to when they signed, and a ratio that has moved from above 100 percent, where buyers were paying more than asking, to below it is one of the clearer signs a segment has turned. It is still read only after those sales have closed.

Reading the pendings

A pending is read without a price, because its contract price is not known until closing. Four measures are visible in the record: the number of new pendings each month, compared with the same months a year earlier; the days to contract; whether the listing was reduced before it went under contract; and the list price at contract. A property that went under contract within eight days while listed at $459,000, with no reduction, shows how that list price was received. It does not show what the buyer agreed to pay.

Price direction

The median sale price of the segment’s closings is the figure most often quoted, and it is the one that lags most. A closing in June generally reflects a contract written a month or two earlier and a list price set before that. A quarter of rising closed medians can coincide with weakening leading indicators, which often happens at a turn.

The indicators that lead are the ones recorded before the closing. The count of new pendings in the segment, month by month and against the same months a year earlier, shows whether contracts are being written at the same pace. The days to contract of the new pendings, and the share of them reduced before contract, show how current list prices are being received. The share of active listings that have taken a price reduction shows how many sellers have lowered their price to draw a contract. Showings per listing, where the office’s showing service reports them, register a change in buyer traffic before any contract records it. The ratio of new listings to pendings shows whether supply is building faster than it is being absorbed. None of these is a price, but together they generally indicate the direction the next quarter’s closed median is likely to take.

Seasonality

Connecticut’s residential market moves through the year. Listings and contracts tend to build through the spring, carry through the summer, thin in the autumn and fall away in the weeks around the year’s end, and the segment’s figures follow that pattern whether or not the market is moving underneath it. A drop in pendings from October to December is expected; the same drop from March to May is not. For that reason a segment’s figures are compared with the same period a year earlier rather than with the previous month, and a month-to-month change is read against the seasonal pattern before it is read as a trend. The seasonal pattern itself is read from the segment’s own history, because the tiers do not all move to the same calendar.

Reading a turn

The indicators are read together. A table of the segment over three months, with the leading indicators listed first and the lagging ones last, shows a turn while the closed median is still rising.

The last three rows, all from closed sales, describe the market of the spring. The first five describe the market the listing is entering.

Application

A market analysis for a listing in this segment cites the closed median’s rise from $455,000 to $473,000, a gain of 4.0 percent over the quarter, and recommends a list price at the top of the supported range “because the segment is appreciating and the comparables will look low by the time we close.” The three comparables are sound.

The leading indicators read differently. New pendings have fallen from 11 to 6 in three months, outside the seasonal pattern, which the same months last year show as flat. The share of actives with a reduction has gone from 15 percent to 38 percent. The new pendings are taking a median of 27 days to reach a contract where they took 9, four of the last six were reduced before contract, and the median active has been on the market 31 days against 14 three months ago. The sale-to-list ratio of the closed sales has eased from 101 to 99 percent, a lagging figure that already points the same way. The direction has turned while the closed median was still rising. The list price is positioned in the middle of the range rather than at the top, the market conditions note in the file describes the segment as having moved from rising to flat with early signs of softening, and no upward time adjustment is applied to the comparables. The seller is shown the table and told that the four percent figure is true of contracts written in the spring. The question of the rising median is answered by the dates: the median describes the market the listing has already missed.

Summary

Direction is read from indicators, and the indicators divide into those that lead and those that lag. The count of new pendings, their days to contract, the share reduced before contract, the share of actives with a price reduction and showings per listing register a change as it happens; the closed median, the sale-to-list ratio of closed sales and days on market at contract record it a month or two later. Days on market is read cumulatively, with the listing history checked, and as a median; the sale-to-list ratio is computed for closed sales only, because a pending’s contract price is not known until closing, and is read against both the original and the final list price; and figures are generally compared with the same period a year earlier before a month-to-month change is called a trend. A listing is positioned for the market it is entering, which the leading indicators describe, rather than for the market the closings describe.