At a recent round table meeting chaired by local real estate agents and lenders, someone asked the Realtors® to describe current market conditions. Although descriptions were given with pride and confidence, they were not different from the depictions that have been reported throughout the year; the responses seemed shallow and pedestrian.
Attendees were hoping for responses that demonstrated a grasp of the local housing market, but instead they got a media narrative that doesn’t tell the whole story. One agent eagerly provided her response saying, “there is a lack of inventory, making it difficult for buyers to find a home.” While another agent described how home sellers need to be realistic about home prices because buyers are wary of paying higher prices and continued appraisal issues.
To say that housing inventory is low is not telling the whole story. Local housing market activity during 2013, not unlike conditions reported around the country, felt like the peak market conditions of eight years ago – but for different reasons. Montgomery County’s active single family home listings through September 2013 increased about 7.7% compared to the same period in 2012, as reported by the Greater Capital Area Association of Realtors® (gcaar.com). Although county single family home active listings are less than half that were recorded in 2007; consider that SFH actives are also at about the same level reported during 2005, which is considered to be the peak market.
Although the number of homes listed may be close to the same levels of the peak market, SFH closings are reported to be about 34% lower than the number reported during the same period in 2005; and SFH contract activity is about 30% lower than 2005 as well. Even though the market has seemed as if it has been the most active in recent years, SFH contract activity is slightly lower than the same period in 2009.
And although home sale prices have rebounded somewhat, average sale prices continue to be way below what they were during the market peak. It is easy for home sellers to grasp on the reports of double-digit year-over-year increases; however, sellers who expect the same return are disappointed. The year over year jump in home prices are explained by some experts as a statistical phenomenon produced by the sharp decrease in distressed home sales (e.g., foreclosures and short sales). This can be accounted for by the nominal month-over-month increases in average home sale prices through 2013.
Home sale absorption rate through 2013 has been similar to that of 2012, considered to be the housing market bottom. Absorption rate measures the pace of home sales by comparing monthly sales to the same month’s listings. This similar pace may indicate that the increased activity during 2013 may not be due to “pent up demand,” which has been a popular narrative by economists; but rather it may signify the underlying strengths in the marketplace.
That being said, the housing market is co-dependent on overall economic conditions. As mortgage interest rates have slowly risen, we have seen a resiliency in the market as home sales have remained stable. And as some economists are talking about the possibility of the double digit interest rates in the future, it appears as if a slow and deliberate increase has not yet deterred home buyers.
By Dan Krell
Copyright © 2013
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