Real Estate Market Statistics

A new feature on this blog is something you can look for on Mondays.  I’m posting it early this time, so that I can get the new statistics from May 31, 2010 to you to review as you browse the web on your computer this weekend.

The two reports you will receive are actually links to the RE/MAX Properties, Inc company blog (for which I am a featured blogger) because the raw data and charts are posted there for you.  I will give my interpretation of what I’m seeing so you will know when I think the market really is turning up and that better times are ahead for sellers.  For you buyers, that means you will want to know when prices are starting to go up.  Increases in prices are going to have a dramatic effect on the amount of home you can purchase for the money available to you and consequently affects your payment and down payment requirements.  Interest rates are not the only variable when you are trying to decide when the time is right to purchase a home or sell and move-up (or downsize).

Days Supply and Target Market Analysis

The two reports you will see are the RE/MAX Properties Days Supply and Target Market Analysis.  The Target Market Analysis is weekly information on changes in the number of listings and showings generated through RE/MAX Properties, Inc.  Since we have the largest market share in the Pikes Peak Region, our numbers reflect the market as a whole very well.  The second report you will find monthly is Days Supply.  This is a chart of different areas and price ranges and the changes in the rate of sales over the previous 4 months.  It reflects one point in time and shows you the number of homes that are on the market and have sold during the period.  From those numbers are calculated the number of days it would take to sell all homes currently available as if nothing new were coming on the market.  A negative number is an improvement and for May 31st, that number overall is -16.52%.  In the same period (07/01/09-10/31/09) prior to the last $8000 tax credit expiring (which it never really did) that number was -9.98%.  So we saw more than a 65% improvement with the latest tax credits than we did last year.  But remember, we have borrowed buyers from the future so that they could take advantage of the tax credit and I expect to see less improvement in coming months.  Our showing activity has decreased 48% since the top of the market the first week of April and listing activity has increased 7% since then.  Sellers need to be realistic in this market if you want to sell at all.  Those first to the party with the best price and condition will win because it will still be a buyers market for the foreseeable future.

Remember Mondays for new information

So check back here weekly for new Target Market Analysis information and monthly for the latest Days Supply numbers.  We want you to be on top of the market so that you can be an educated consumer when it comes to real estate.  We’re here when you need us.  We’ll put a light on the market for you.

Real Estate Stimulus in Retrospect

Last spring the federal government sprung the $8000 home buyer tax credit on the real estate market in an attempt to spend stimulus money and nudge the real estate market forward.  Many buyers took advantage of the tax credit and sales increased, even though prices haven’t really.  Then when it was apparent that the real estate market, especially new home sales, needed further resusitation, the $8000 tax credit was extended to April 30, 2010 and a new $6500 tax credit for current home owners who have been in their home 5 consecutive years out of the past 8 years was launched.  These homeowners now had the opportunity to buy one of those higher priced homes languishing on the market or to build the home of their dreams up to $800,000 and with very low interest rates (if they qualified for a loan).  Many people have taken advantage of these programs as well.  It has been a boon to the real estate market — but a temporary one, in my opinion.

Sellers Tired of Languishing Market?

So what will happen now?  Past posts on this blog have addressed this issue, but an update would be timely given that the clock is ticking on all the sales generated through April.  Many transactions have already taken place and new homeowners have the keys to their new home.  Congratulations new homeowners!  Builders have until the end of June to get all those new home starts closed for first time homebuyers and repeat buyers alike.  Sellers whose homes are currently available for sale have been making price adjustments to try to capture the attention of buyers who haven’t pulled the trigger yet.  Some sellers who would like to sell and have been sitting back waiting are putting their toes into the water, but they haven’t had a market reality check yet and many are probably too optimistic in their pricing.  This could have the effect of making homes with recent price reductions look more attractive, but it also increases competition for buyers.  Only sellers who have decided they must sell now and are willing to price their homes competitively will capture the buyers who are actively pursuing a home.  And those buyers know they are in the driver’s seat.  That isn’t going to change for quite awhile.  Even in a good market, all homes don’t sell.

Just what is median price?

But, wait a minute you say.  I’ve seen reports that the median price is going up.  Doesn’t that mean that sellers are getting more for their homes than they were in the past?  Not necessarily.  Here is how the dynamics of the recent market works.  Since the first round and second round of tax credits were aimed at first time homebuyers, the segment of the market that has been in demand has been the entry level home market.  In 2009 that meant that the median price of homes that sold were lower than if the sales distribution fell along a more normal curve with sales throughout all price ranges.  In Colorado Springs, the entry level market is primarily homes under $200,000 and definitely below $150,000.  The sales during the past year have been skewed to the lower end having the effect of lowering the median price.

Homes priced over $400,000 have a lot of competition because those are typically move-up homes in our market and there haven’t been many move-up buyers.  The over $1Million home market has been abysmal.  The middle ground ($200-400K) is a mixed bag since some first time buyers buy in this price range.  The good news is that by targeting first time homebuyers, former renters now own homes and the sellers of those entry level homes have had a lot of well priced homes to select from for their next home.  The sales of those homes has had the effect of increasing the median price this spring as sellers of entry level homes now have the opportunity to buy.  More higher priced sales brings the median price up.  The bad news is that about 1/3 of the sellers locally are either short sales or bank sales of foreclosure properties, so those sellers won’t be moving up into a nicer home.  They are back in the rental market.  So there’s not as much help for sellers of more expensive homes as we’d like to see even though the median price has gone up in recent months.  Those increases are not due to increased prices for sellers.  They are a function of what the sales curve looks like.

That brings us back to the repeat homebuyer tax credit.  If someone who has been in their home for the past 5 years or longer wants a nicer, bigger home, the government offered $6500 for them to take their shot.  Of course, all those underwater homeowners who purchased since late 2005 are out of luck.  Chances are they would have to bring cash to closing to sell anyway and are unlikely to move unless they have to.  Do you think the government stimulus plan architects knew that?  Their goal was to get homeowners who had equity in their homes to move that money to a new home thereby generating commissions to market professionals and increasing mortgages that can be bundled and sold to Fannie Mae and Freddie Mac.  An underwater homeowners best option may be to stay put, accelerate their mortgage to gain equity faster, and create a selling opportunity in the future.

Future Trends?

The next 3 months is the remainder of the best selling season in a lot of markets.  Once school starts again in the fall, people tend to stay put and sales slow during the cold winter months.  We are keeping a close eye on local activity in the Pikes Peak Region so we can try to anticipate what the future trend will be in 2011.  With the government financial incentives gone, sellers will need to create those in the marketplace to encourage buyers to keep buying.  If they aren’t willing to do so, they may as well stay put.  My expectation is that activity and prices will decline, with declining median prices once again, until buyers start feeling secure in the job market and we reach an equilibrium that starts to generate demand once again.  Classic economics.

We Can Help You!

If you are a seller sitting on the sidelines or a buyer who is uncertain what to do now, I work with a team of professionals who can help.  By understanding the underlying factors in the market and knowing our local market, we can provide you with the knowledge you need to make the right decision for you.  We love to help!

Don’t forget to come back here every week for updates on the real estate and financial markets.  And don’t forget restaurant reviews on Thursdays.  Tomorrow - where to get a great pizza!

I’m a trend analyst.  Not by formal training, but by nature.  Trends help me try to make sense of the universe.  I really must be a math geek because I am always looking for patterns.  I guess that’s why stock trading appeals to me.  As the DJIA hovers around 11,000, my curiosity peaked and I decided to take a random, or not so random, walk through recent history.  A lot of people follow the S&P, but I like the DOW.  It’s a microcosm that tells us about America.  I use the S&P and Nasdaq to verify what I think I’m seeing.

RECENT HISTORY

So what did my walk tell me?  That being in the market and investing regularly is a good thing.  I’ve mentioned before how the market went sideways through the 1970s but people still made money.  They did it by continuing to invest smartly.  As I get close to retirement I have tempered my usual aggressive self somewhat, but if you still have 20 or 30 years to invest before starting to withdraw assets, you may find my trend analysis interesting.  Even you old boomer farts (like me) might want to follow along.

A SIDEWAYS TREND

We have been in a sideways trend between 10,000 and 11,000 for the past 6 months.  That is the longest sideways run since 2007 when the DJIA moved sideways in a 1000 point range for 9 months.  It will be interesting to see if we break 11,000 and move up or meet resistance for awhile.  After hearing my analysis, you decide what you think will happen.  Starting in April, 1999 the DOW hit 10,000 and didn’t look back until the market bobbles in 2001 and 2002, in effect a 3 year run before a major change occurred.  Then in May, 2002 the market started a slide to around 7500.  Recovery was quick - 10 months of hand wringing until the market started up in March, 2003 and was once again above 10,000 in December, 2003.  People who kept buying (that would be me) were happy and had a nice double digit increase in 2003.  The DOW stayed in a range between 10,000 and 11,000 when it once again started rising in February, 2006.  At that point the market kept going up and up for 20 months until the DJIA was over 14,000 in October, 2007.  It was a lofty year for stocks and real estate alike.  But then things started to change.  After such a heady rise for over 4 years, it was hard to appreciate that the end was near in October, 2007.  The DOW stair stepped it’s way down to 13,000 and dropped to around 11,000.  It was a confusing market.  The average 401k investor couldn’t tell if it was building resistance or support. (Check the recommended reading list if these are foreign terms.)  Hindsight tells us it was definitely resistance.

In August, 2008 the party came to a crashing end with a 3 1/2 month long freefall that caused people to start crying “depression”.  Those who had ignored everything occurring in the economy were blindsided and lost 40-50 percent of their investments.  A 28% drop occurred during those 3 1/2 months with another 16% decrease until the DJIA hit bottom in March, 2009.  With the mortgage debacle that was happening, bonds weren’t sacred either.  The chase for higher bond yields in funds put these investments at risk.  An interesting aside is that market volume started rising above 2 Billion shares in September 2005 and continued to rise until it hovered mostly above 5 Billion shares from August, 2008 until June, 2009.  Volume still is hovering over 4 Billion shares, double the rate in 2005.  Who is buying and who is selling?

THE GLOBAL ECONOMY

So now we’re touching 11,000 on the DOW.  We’ve been above 10,000 since November, 2009.  The real estate market appears to be recovering.  But where are the jobs?  Where will they come from?  The banks are sitting on their impressive returns after TARP money was handed out, but businesses need capital to grow.  Without business growth there is no job growth.  The government doesn’t produce anything so all the “stimulus” activity is just blowing sand until business owners start feeling confident enough to start letting go of the purse strings.  I don’t see that happening in the real estate market yet.  Realtors are conserving cash because they know (those that educate themselves) there is another wave of foreclosures coming that will affect real estate prices until 2013.  Arms are resetting.  One of every 6 mortgages is in default and 1 in 4 mortgages is underwater.  There is phantom inventory sitting in bankers’ portfolios and there are phantom short sales overhanging the market because some delinquent loans haven’t been foreclosed on….yet.  But does that all mean you should pull out of the market and hunker down for the long haul?  Everyone has to check their gut to see how they feel about that.  I’ve pulled back more than I normally do, but I have a short timeframe before I need to tap into my money.

For people with a long view, this market offers buying opportunities that are appealing for both stock based investments and real estate.  We could have a long sideways market.  We could see the market slip again if a lot of bad news hits the presses.  My gut is telling me that we’re not going to see any long sustained increases in the stock market or in real estate prices anytime soon.  Only time will tell me if I’m right.  The DOW is still 22.5% lower than at the height of the market in 2007.  We’ve been over 14,000 before and we’ll probably get there again.  We just don’t know when that will happen.  We not only are affected by what happens in the US but by what happens worldwide.  China owns a lot of treasury bonds.  The EU is having issues with Greece and trying to decide when/if to step in to protect the euro.  The EU is like a mini US now and they have to play nice with each other to hold things together.  It will be interesting to see what financially solid Germany does as things play out.

WHAT SHOULD I DO?

Some people are comfortable being contrarians and taking educated risks to try to take advantages of market opportunities.  Others are more comfortable pulling out, sitting back, and taking a wait and see approach.  Common sense for one person is very different for someone else.  I believe in knowledge.  The more you have, the more you can make educated decisions that feel like common sense.  So my recommendation is to read, listen, talk to people you trust, and educate yourself.  After awhile a pattern will emerge that makes sense to you so you can try to make sense of the universe.