It is with some fascination that we continue to watch the local real estate market as it continues its predictable pattern for unpredictability. Forecasting has been largely abandoned, replaced by tracking the immediate history. So where do we stand today (for those who simply want us to bottom line the market conditions, skip to the end of this article).
The market hit bottom in April 2009 (at least in the under 250K range). From that point, speculation was raised of whether the worst was over or if in fact a “double dip” was in the offing. The market began a slight recovery phase with the first time homebuyer tax credit – which stimulated the demand for real estate through mid-2010 and made great headway in consuming the over supply that had so badly harmed pricing. Pricing began to firm and we pondered if the first leg of recovery had begun or not. Some 20 months later after the “bottom” was established, the double dip has arrived. But as is consistent with our market for the last few years, it presents some interesting dynamics (some might say schizophrenic).
For the monthly period ending January 15, the price per square foot averaged $82.16 per square foot for all areas and types – down 1.3% from $83.20 on December 16. Pending sales price per square foot seems to suggest further drops in sales prices ahead.
It is clear that we have now fallen below the April 2009 levels and overall prices are trending lower still. However the detailed picture is more complex than appears at first sight.
First, pricing for normal sales (not short sales or foreclosures) has actually strengthened over the last three months, from an average of $106 per sq. ft. in October to around $112 in January. You read that correctly, normal sales have strengthened slightly. While this would appear to be a cause for celebration, this improvement in normal sales pricing has little effect on the overall average because normal sales only constitute 28.4% of sales.
Short sales, not surprisingly after the foreclosure festival held by the lenders this summer, currently compose only 21.1% of the closings. The lion’s share of the closings (and gaining) is the REO properties (bank foreclosures). The pricing of short sales and foreclosures has been particularly weak in the last six weeks, falling from $82.78 on November 30th to $77.45 on January 16th. That’s a 6.4% drop in just 7 weeks and is the primary cause of the overall fall in prices. Sales pricing for REOs has remained virtually unchanged at $63.70 over the same 7 weeks, but this also negatively affects the averages because REO market share has increased from 47.6% to 50.4% in the same period. Increased market share of foreclosures rarely bodes well for pricing.
Price behavior also varies by dwelling type. Over the last six months we see the following:
|Monthly Average $/SF for:||July 16, 2010||Jan 16, 2011||Change|
|Single Family – Detached||$89.98||$81.85||-9.0%|
|Apartment Style / Flat||$94.69||$88.94||-6.1%|
|Gemini / Twin||$69.05||$65.74||-4.8%|
|Mobile / Manufactured||$34.99||$33.66||-3.8%|
So we see a less than cheery picture for sales pricing and no sign of any improvement in the next four to six weeks. In fact we see continued deterioration. But we are not overly concerned about this since sales pricing is a trailing indicator of the market and is the last thing to reflect any turnaround. When we look at other measurements things are not so gloomy. This is because lower pricing results in increased demand which is certainly making its presence known at the moment.
In short, prices are down, activity is up. The current monthly sales rate and the number of pending listings are both very strong for this time of year, while active listings have declined over the last two months. All of these signs suggest a strengthening market. This gathering strength is still unlikely to be reflected in sales prices for several months, but it does look as though the spring buying season will be very busy in 2011. It will take more than one spring season to generate a market recovery. However it does mean that the downward pressure on pricing is starting to ease.
So 2011 is off to a bumpy but busy start. Our thanks to Mike Orr of the Cromford report for the numbers and inspiration for this article. As always, we will continue to track the market and share our findings with you.
Russell & Wendy Shaw