I met a realtor last week who said good news was around the corner. Because he had a novel take on things, I spent some time talking to him to find out if he had a firm grip on reality.
His take was this: there’s an underlying demand for buying and selling homes that comes from death, divorce, job transfers, and young people buying their first home. At the moment, this natural demand is being stemmed by media reports of a crisis in the property market. But there will come a time when this demand will break through the wall of media hype, and overnight we will once again have a cascade of buyers clamoring for homes.
It’s an interesting viewpoint, and worthy of consideration as it is so different from almost everything out there, which is so darkly negative.
Before we look to the future, let’s look to the past. 2007 really was a dreadful year for the local real estate market. It is clear that in 2007 real estate performed well below the previous four years. The total volume of homes bought and sold was half that of 2005, and $20 million below that of 2003.
As an illustration of how bad things really are, only 26 residential homes from the multiple listing service sold in December 2007. This is the lowest monthly sales in over 10 years. This has bumped the inventory in the system up to a 23-month supply, an astonishingly high number.
Many of you who have been reading this column for a while are familiar with the main reasons behind this worsening sales environment: rising oil prices making commuters less interested in new homes; high inventory depressing house prices; flight of the investor as prices became flat then started to fall; sub-prime credit collapse impacting the bottom end of the market; lack of confidence both in the real estate market and the overall economy.
For the situation to change we will have to see some major shifts in the marketplace. Over the past month we may be seeing the seeds of this change. In December 2007 the number of residential homes for sale in Jefferson County fell to 601—from a high of 768 homes in September 2007. This is the third successive month that the number of homes for sale has fallen. On the other hand the vast majority of the homes removed from the inventory have been due to sellers withdrawing their homes, rather than actual sales.
Another positive sign is that the number of homes that are being listed for sale hit the lowest number in 24 months in December 2007, at only 64 homes. This shows that sellers are beginning to recognize how poor the real estate environment is. If this trend continues, it should allow the inventory to fall still further as buyers purchase some of these existing stock—even if at a slower pace—and other sellers continue to withdraw their homes from the market.
A word of caution, however. Inventory tends to fall at this time of year, only to rise again as spring approaches. For the inventory to fall in a sustained fashion, over the coming months we will have to see not only continued homes being withdrawn from the market, we’ll need to see fewer homes being listed for sale. And we must see an increase in the number of homes that are actually selling.
This takes me back to my friend I was telling you about at the start of the column. It is his view that the market is going to spring back into action faster than most pundits expect. While this may be a too-rosy picture, there is a point to this. We all—realtors, lenders, journalists—can get overly excited by the story of a failing marketplace. And just as we were surprised by buyers disappearing overnight from the market in fall 2005, we may well be surprised again when the pendulum swings the other way.
In the meantime, for all you buyers out there—and there are more than you think—now is an amazing time to buy. Interest rates are crazy low, there is a surplus of terrific homes for sale, and sellers are highly motivated to let go of their homes. If you have two pennies to rub together, go grab a realtor and find yourself a bargain.
