I have to admit, I’ve been in a bit of denial recently. I haven’t wanted to look at the raw data for real estate. I asked the editor if I could start writing restaurant reviews, but he told me we already had a food columnist. I asked if I could write about a renewed Pokeman craze sweeping the schools, but I was told we have a sports writer. So I guess it’s back to homes.
Last week I bumped into a guy on the street who said he missed my graphs and charts. I told him that I missed the upbeat market and the fast flowing home sales. I’m not sure he got my point. Nevertheless, I felt like I should take a new look at the numbers.
I keyed into the MLS reports and scanned the data for the past couple of months. It was worse than ever. “Uh-oh” I said to my wife. She took a look at the numbers over my shoulder. “Uh-oh” she said.
What’s so bad, you may ask? Well I tell you straight: the news from the streets is that the market is getting worse, fast. Take a gander at the graph below. What’s so awful about this? The first thing to notice is that the number of homes sold never really matched the number of homes under contract. This is most unusual. Typically these two variables mirror each other closely. At least they have done so over the past few years.
In 200 we see the number of homes sold underperforming compared to homes put under contract. This means that in an already depressed market many homes that are put under contract do not make it to completion. It’s not clear why this should be, but I would hazard a couple of vaguely educated guesses.
First, a number of buyers who secured preliminary approval from lenders at the time they made an offer had their approval removed or withdrawn by the lender by the time of settlement. This would be because of tightening standards and reviews in the financial sector as a result of the sub-prime market collapse. Second, in between offer and settlement, the sub-prime market collapsed, which drove residential interest rates for those with poor credit from around 7 percent to as much as 12 percent. This prompted those buyers to withdraw their offer.
So much for the past. What about the future? In October we had only 32 pending contracts in the residential market. This is perhaps the most frightening number I have seen all year. The figure is about 25 percent lower than the number of contracts for the past four months. This, of course, predicts that the number of homes that will go to closing in November 2007 will be around 30, or maybe even fewer, an all-time low for the year. Even worse, the last time that 32 or fewer homes were put under contract was December 1998. At that time there were only 407 homes available for sale in Jefferson County (compared to 758 today). Only 29 homes were listed in December 1998. In September 2007, 137 homes were listed.
Maybe I should ask my editor if I can write about flower arrangements. But he will probably tell me this topic falls under outdoor activities, and we already have someone who writes about them. I am left as the bearer of bad tidings. Anybody out there prepared to offer counseling for a real estate columnist?
