Debunking the Labor Day Price Drop Myth

By John Coley

The longer you live somewhere, the more myths you hear. I would go so far as to say that the older the locale, the more profuse and imaginative the myths. Lake Martin has its share. One myth we have is that home prices drop after Labor Day every year.

I hear this a lot from buyers, especially this time of year. They think, “I might as well wait until they drop prices after Labor Day.” When I hear this, I always let buyers know that most of our sales on Lake Martin happen from March to October.

Even though I suggest they are probably waiting for something that won’t happen, sometimes they don’t believe me. I even had one buyer disagree with me strongly, saying, “Look – I know for a fact that they will drop prices, and I am waiting.”

That rebuke made me think. ‘Is the buyer right? Have I actually ever researched it? Have I put numbers to my generalizations?’ Maybe I was the one who was operating on myth. The only way to solve the mystery was to dive into the numbers.

According to the Lake Martin Multiple Listing Service, in 2011 only 21 percent of sales happened after Labor Day, even though there were about 32 percent of the year’s days left then. In 2010 and 2009, results were similar – selling only 24 percent of homes over that period. So if you wait until after Labor Day, you have about 1/3 fewer sales than average.

But what about price drops? Do sellers slash prices after Labor Day to get these homes sold, even if fewer are sold? Again, consulting the Lake Martin MLS sheds light on the mystery, and this mystery is easy to track. I looked at every sale that happened after Labor Day for these three years. In 2009, 47 homes sold, but only five dropped the price after Labor Day. In 2010, a close 46 homes were sold, but a mere three showed price drops. In 2011 the story was the same; 44 homes sold and only four price drops. Sellers aren’t dropping prices.

Wait – you may say. What about those sellers who don’t drop their list price, but they are so eager to sell that they would be willing to take a lower offer than they would in the summer?

The only way I know to track that, short of doing a Vulcan mind meld on every seller, is to look at sales price versus list price. This is a pretty common industry metric – you divide a home’s sales price by the listing price when it sold. I think that if sellers are more desperate in the fall, this percentage would be considerably lower than it is for the rest of the year, displaying that sellers are accepting lower offers.

For example, I looked at the total reported sales amounts for every single home sold in 2009. Then I divided that by the total dollars worth of list price at the time they sold. Homes that sold were an average of 87 percent of their list price. After Labor Day, the number dropped to 85 percent. Two percent is pretty doggone close. In fact, I would argue that it is a statistical draw, but a loss is a loss. Checking out 2010, the margin is even thinner. Homes sold at an average of 88 percent of their list price all year, with it dropping to 87 percent after Labor Day.

The myth tellers might could claim a victory if it weren’t for 2011. Check it out. In that year’s 207 sales, homes sold for an average of 91 percent of list price – but after Labor Day – it rose! After Labor Day 2011 homes sold at an average of 95 percent of list price. What? That would mean the opposite of the myth – that sellers became more confident of their list prices after Labor Day 2011!

I think we can draw several conclusions here. First, it busts the myth that sellers drop prices or become desperate after Labor Day.

Secondly, and perhaps more interestingly, step back and look at the three-year trend. In each category, the entire year and portion after Labor Day, all percentages rose each year. Mind you, I am not saying that we are in a seller’s market yet, but the trend is upward. This doesn’t tell us (necessarily) that prices are increasing. This could simply be an indicator that sellers and their agents are pricing more accurately.

Lastly, I think the more oblique conclusion is proof positive to me that any seller who is contemplating a price drop needs to do it before Labor Day and not after.

Anyone thinking about buying – please don’t misunderstand me. Plenty of good deals are still made from Labor Day to January 1. I think these numbers also show that if you choose to house hunt during this time, you will have less competition, and that is a good thing. Just don’t expect sellers to roll over quickly.

John Coley is a broker and owner of Lake Martin Voice Realty. He is also the author of the blog Lake Martin Voice at LakeMartinVoice.com. John is firmly committed to zinc oxide’s comeback as a sun block and fashion statement.