Way back in September of 2005 I felt like the market was softening. Sales were still going strong and sale prices were still climbing, but something just didn’t seem right. So I went back a few months and just looked at price adjustments made to the available homes on the market. Here’s what I found. Five months earlier, in the month of April 2005, there was only 14 price adjustments made– next to nothing considering the large number of homes on the market at that time. But look how quickly the number of adjustments increased. Within 5 months that number was up 1471% to 205 adjustments. And even more incredible was the number of adjustments, 583, up 3800% in the 16 months since April 2005. I’ve been tracking this statistic since then and the data is illustrated on the graph titled Residential Price Adjustments below. Remember, the number of sales and the median sale price were still climbing in 2005 but clearly the market was softening as reflected in the sales numbers posted in 2006.
So, if an increase in the number of price adjustments is an early indicator of a softening market, is a decrease in the number of price adjustments an early indicator of a firming market? Seems logical but the jury is still out. Let me share what I have found so far. First off, I’ve broken down the adjustments into price adjustments up and price adjustments down. I’ve also compared the number of adjustments, up or down, to the actual number of homes on the market. It makes sense that the more homes on the market, the more adjustments would be reported and may not be a true reflection of the market direction. Looking at the percentage of adjustments as compared to the available inventory, and trending that percentage, may be a better indicator of the market activity.
The two graphs below look at just these percentages. They both graph the most recent 90 days of data and project out the next 90 days. The lines in red illustrate downward price adjustments and the green lines represent upward price adjustments. The first graph was created on 10/29/2010. Note that both straight line trend lines are flat meaning that the number of price adjustments, up or down, was remaining constant. Now look at the second graph prepared on 12/31/2011. Clearly the number of downward price adjustments is declining relative the actual number of homes on the market.
Does this mean that prices are firming up? It’s hard to say at this early stage but what I can tell you is that the median sale price of homes was up 6.7% in November and 5.5% in December. All of the data that I track tells me that the market is turning. Velocity, the number of sales bottomed in 2010 and has been improving since, the median sale price dive bomb has been slowing since as early as 2009 and has been on the positive side the last two months, and the number of pending sales did not realize the normal seasonal drop off last fall and into this winter and is showing seasonally strong numbers into this spring. All of these aspects of the market combined suggest to me that the market is well into recovery mode.
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