Market Condition Update

Price Adjustments – Any Kinda’ Indicator?

marketconditionupdate — Tue, 17 Jan 2012 23:14:46 +0000

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.

The Light at the End of the Tunnel

marketconditionupdate — Tue, 13 Dec 2011 04:16:23 +0000

The real estate market is a micro-market industry. And what I mean by that is my market here in Northern San Luis Obispo County is different than, let’s say, Stockton, Miami, Detroit, Silicon Valley. The national numbers and statistics shared by big news media outlets is good information on the big picture level but about as useful locally as saying “The average high temperature in the nation today was 72 degrees”. So I keep a close watch on the local market and I’d like to share the silver lining I see in today’s local market.

The first thing to understand is that velocity, the number of sold properties, leads the market ahead of value, the median sale price of those sold properties. Kind of like a leading indicator. Look at the Velocity & Value graph below. In 1989 the number of sold properties peaked and then went into serious decline into 1990 but at the same time, the median sale price was still climbing. The velocity bottomed in 1991-2 and showed significant improvement in 1993 and beyond. But value did not realize any significant improvement until 1999 – 2000. And then again the velocity peaked in 2004, began its decline in 2005 and beyond but value didn’t adjust downward until 2007, two years after the velocity peak.

Velocity appears to be a leading indicator in the real estate market. Keeping this in mind, let’s take a closer look at recent activity in my real estate market.

The Single Family Residential Monthly Sales graph below shows us the actual number of homes sold for each month since December of 2007. The straight line trend line indicates the number of sales is experiencing improvement through November 2011.

Pretty good, but let’s take a closer look. The Single Family Residential – Monthly Sales graph below shows the rate of change from one month as compared to the same month from the previous year, or the rate of change year over year. This is really exciting. Since December of 2010 we’ve experienced just one month of fewer sales than the previous year. That’s 11 out of twelve months of improvement and I’d like to point out – significant improvement! This is very encouraging. Has the velocity side of the market turned? It very well may have. When 2011 closes its books, there will have been more sales than 2010. That’s easy, 2010 was a dumper. There will also be more sales than 2009.

Will this trend continue into 2012? Let’s take a look. The Number of Pending Sales graph below shows us how many homes in our market area have a purchase contract in place and are working toward a final sale. Take a look at how consistently strong the pending sales numbers have been , particularly in the second half of 2011 when compared to the other 4 years illustrated. This is the demand and it has held steady well into the seasonally slow period in real estate sales. These pending sales will be reflected in higher sold numbers early in 2012. So I see continued improvement in the number of sales, the velocity, entering the New Year. Again, very encouraging numbers.

So based on all the stuff presented above, I’m pretty confident that the velocity side of the market has turned and is on the road to recovery. We probably bottomed in 2007, 2008 and 2009 showed some improvement, big stumble in 2010 and now 2011 seems to be back on track.

Let’s take a look at value and the Single Family Residential – Median Sale Price by Month graph below. We see that prices are lower today than they were in December 2007. I feel the pain. But check out the Single Family Residential – Median Sale Price rate of change graph below that. This graph shows a slowing in the rate that values are declining. And November 2011 had significant improvement over 2010. My preliminary numbers indicate that December 2011 will be slightly better than 2010 as well.

Is the value side of the market bottoming out? It very well might be. The Supply & Demand graph below shows us the relationship between fully available homes on the market and the pending sale homes. I like to call this the demand ratio. When I first started tracking this information in June of 2006 we had loads of available homes with modest demand at a ratio of 16.82%. The demand ratio fell to a low point in late October of 2007 at 7.9% of homes on the market had a purchase contract in place. The demand ratio experienced upward movement through 2008-9, stumbled in 2010 and has shown steady improvement late into 2011 reaching a high point on 11/28 at 40.13%. This high ratio is a result of steady demand as we discovered in our look at the velocity side and low supply or inventory levels indicated by the green area on this graph. Where does the demand ratio have to be to start applying upward pressure on value? We may be reaching that point. Property values may be bottoming out now. But as we saw in the very first graph above, value, once turned, takes awhile to accelerate. There are many variables out there that suggest prices will not climb quickly anytime soon. Pent up inventory of distressed sale properties not yet on the market and equity sellers who want to sell but are waiting for a better sellers’ market before jumping in will keep values from improving quickly.

All that said and summarized in a nutshell; I am optimistic about the direction our little micro-market is going. Demand is good. Sales are up. They should be. We live in a very desirable area. Value may be bottoming out as indicated above. These numbers indicate that 2012 will be a sound year in our real estate market.

Interesting Numbers Reflect Trends

marketconditionupdate — Sat, 05 Nov 2011 01:10:31 +0000

(Click on chart for larger image)

3rd Quarter Numbers Show Continued Improvement

marketconditionupdate — Sat, 08 Oct 2011 16:04:32 +0000

Third quarter sales of homes in my market area show continued improvement in the number of homes sold. This quarter realized a 31% increase in the number of sold homes over the same quarter of last year. That makes 3 consecutive quarters of significant improvement in the number of sales. And, there are enough homes under contract today that the 4th quarter will also show improvement over the 4th quarter of last year, and, when this year closes out, we will have realized more homes sold this year vs last year and more homes sold in 2011 than in 2009 too. The median sale price shows another decline but I’d like to think that the rate of decline is slowing. We know, from studying the last downturn, that value is the lagging indicator. The question of the day is “How many quarters of improved sales do we need to experience before value starts to increase?”

Property Type Residential Include Property Subtype SFR Stick Built Cities Atascadero, Bradley, Cholame, Creston, Paso Robles, San Miguel, Santa Margarita, Shandon, Templeton Status Sold (7/1/2011 to 9/30/2011) Price 1,000 or more

marketconditionupdate — Wed, 14 Sep 2011 19:22:05 +0000

Demand is holding steady well beyond the selling season.

August Home Sales Numbers Look Good!

marketconditionupdate — Tue, 13 Sep 2011 17:45:52 +0000

I knew the number of sales was going to be good – this is fantastic! The number of home sales for August 2011 is up 61.1% over August 2010. And, yes you can believe it, the value of those sales is actually on the plus side 1%, not much but definitely better than the other direction! (click on graphs for larger image)

———————————————————————————————————-

Property Criteria: Property Type: Residential, Include Property Subtype: SFR Stick Built, Cities: Atascadero, Bradley, Cholame, Creston, Paso Robles, San Miguel, Santa Margarita, Shandon, Templeton, Status: Sold (8/1/2011 to 8/31/2011), Price: 1,000 or more

July 2011 Housing Sales Numbers Report

marketconditionupdate — Sat, 20 Aug 2011 14:39:55 +0000

The median sale price of single family homes is down 8.4% from the same month of 2010. The number of sales for the same period is up 17.6%. All this data is illustrated on my website along with a complete list of individual sales by address.

Data criteria : Property Type: Residential, Include Property Subtype: SFR Stick Built, Cities: Atascadero, Bradley, Cholame, Creston, Paso Robles, San Miguel, Santa Margarita, Shandon, Templeton, Status: Sold (7/1/2011 to 7/31/2011), Price: 1,000 or more

marketconditionupdate — Mon, 15 Aug 2011 18:49:58 +0000

Here’s a snap shot of how our residential market has looked over the last few years…..

(click on the image for a larger view)

2nd Quarter Numbers Hint at a Recovery

marketconditionupdate — Mon, 11 Jul 2011 02:16:13 +0000

Although 2nd quarter median sale price is down again (5% when compared to the 2nd quarter of 2010), the number of sales boomed (up 28% for the same period). If the number of sales continues to improve as it has over the first 2 quarters, through 2011 and into next year, we may begin to see some price improvement late next year.

Projecting 2011 numbers based on the results of the first half of the year and considering current pending sales, indicates that 2011 very well may be the turning point for the real estate market here in my market area. Continued improving sales quantities will stoke the fire for increasing values down the road.

Supply and Demand Snapshot

marketconditionupdate — Fri, 17 Jun 2011 19:32:44 +0000

The graph immediately below looks at the long range history of available homes (green/supply), the number of those homes that are sale pending (blue/demand), and the ratio (red/demand%) pending homes vs. available homes. I’m hoping to find a point on the ratio scale that correlates with value. What I mean is “What percentage point of homes for sale that have a contract begins to apply upward pressure on pricing?” When I started keeping track of these numbers the ratio was at 16.82%. We fell to a low of 7.9% in October of 2007. And the highest point has just been recently reached on June 10, 2011 with 35.64% of available homes with a purchase contract. I would think that this climb in demand would be enough to start pushing prices up but not the case so far. If we look at the median sale price graph at the bottom of this post we see that during this same stretch of time, June 2006 – June 2011, prices have been on a steady decline.

The graph below is a snapshot of the most recent data. I look at these trends to better counsel my clients who are considering entering the market; as buyers, or sellers, or as both seller then buyer. We need to know where the market is going right now and into the near future. The 90/90 Supply & Demand graph below takes the most recent 90 days of data and projects out 90 days into the future. Today the this graph shows us that even with an increasing inventory of homes (supply), pending sales (demand) seems to be growing at a slightly quicker pace as indicated by the sale pending ratio trend line (demand ratio).

The first graph, Supply & Demand, tells us that the number of homes for sale (supply) has consistently declined in the second half of each of the 5 previous years. The graph also shows us that pending sales (demand) is not so predictable.

Will supply decline later this year? Most likely.

Will demand continue on its upward direction? Too many outside variables in the world today to accurately predict. That said, I am convinced that the market is turning.

Is there pent up supply waiting on the sideline for a sign that prices are turning? Yes.

Is there pent up demand waiting to jump in when they feel the market has bottomed? Yes.

We know velocity leads the market and value follows behind. The 2^nd quarter of 2011 will reflect an 18% improvement in the number of sales when compared to the 2^nd quarter of 2010. Value will reflect a 3% drop in median sale price. The velocity side of the market is showing some fairly consistent improvement. Pricing is still declining but that decline is showing signs of slowing.