Tag Archives: supply and demand

Real Estate Isn’t Fair: There’s No Longer Anything to Buy

If supply and demand rules everything, then please tell me what is going on with the market right now. 

The calendar year started with a ten-year low in inventory, 3285 listings for sale. Instead of seeing a build up in inventory in January, inventory actually dropped to 3157 listings by February 1st. This sometimes happens, where January is the doldrums and not much is going on in either the buying or selling side of things. Things usually start happening in February and get rolling in March.

Well things started happening in February, but it wasn’t a build up of inventory. As of this morning there are 3161 listings (patio home and single family combined) for sale. An increase of four units in a traditional inventory-build month. This has happened before, in 2002, inventory levels were almost identical and sale rate was almost identical. Average and median prices were also similar. And February ended up lower than January in terms of inventory. 

The part I find crazy is the sales rate: Last week when I ran the check on Tuesday, there were 1551 “contracted” listings (pending, under contract, under contract short-sale and first-right of refusal contingent on buyer’s listing closing). Six days later… there are 1742. If you throw out the short-sales and contingencies, there are 1325 pending and under contracts. That number is similar to a summer-time figure in 2007. But in summer 2007 there were 7000 listings to choose from. There are less than half that many now. 

I had a buyer scoff at the concept of anyone paying over asking price for any property on Friday. Well, I’ve been involved in 20 written offers since December 1st. I have put together less than half of those. Thirteen have been multiple offers. 

I’m not saying the market has recovered. I’m just reporting what’s going on. 

Does Supply & Demand Rule Everything? If So, Which Way is the Market Heading?

I’m having more fun with math than any man should be allowed this morning.

Here is a quick snapshot in chart form of what the Pikes Peak MLS Market looks like in Single-Family Sales terms at Mid-Year.

Pikes Peak MLS Mid-Year Snapshot

Now, this is a graph of what the relationship between Supply and Demand looks like at Mid-Year, expressed as Months of Inventory (Total Active Listings Divided by Unit Sales per Previous Month).

2010 Tax Credit Expired on June 30, 2010.

 

 

Skin in the Game: What The Big Dogs are Predicting for Colorado Springs Real Estate

I just self-audited and have 12 more hours of continuing education to take before August 4th. Hello VanEd. Most of it will be legalistic and boring, and not as relevant as the 4 hours I got from The Real Estate Yoda last Thursday, Mr. Larry Kendall. It’s always a good few hours with Larry, and he actually had a few new tricks in the “showing is better than telling” gear bag.

Let’s pause: 2006. I’m managing agents and hating my life. I have just started the Stat Pack in April and can tell the market is on the edge of a cliff. We had gone from 3800 summertime listings to 6000, and unit sales were dipping. I’m meeting with the owner of a company when another agent comes in with his pitch of “it’s a great time to buy.” This was the same guy who beat me up about frequently doing deals as a Transaction-Broker because my clients had a pretty good idea of what they wanted to do in that rapidly appreciating market… here was Senor Client Advocate blazing the trail of foreclosure for his clients. What has happened since market peak in early 2006 is basically this:

  • We have been in a perpetual heavy-inventory market (3900 summertime listings compared to 6052 last year… over 7000 in 2007).
  • Annual sales units have effectively been cut in half (13,000 single family sales and another 4000 non-MLS new builts in 2005… compared to under 8200 in 2010).
  • Average sales price has dropped 12%, or $30,000 on an annual basis
  • Unemployment has doubled from around 5% to around 10% locally

One of my images from the July 2008 series on the soon-to-come pricing wars. Correctly predicted.

It’s been a real barrel of fun.

Larry’s tribe of Ninja’s don’t plaster their cars with “it’s a great time to buy!” stickers that fade, crack and wear out and are replaced with “Need to Short-Sell? Call Me!” We work with people that are motivated by pleasure or pain and lay out strategies that are customized for their needs and sustain their futures. We are present to the now. So when Larry went to the “this is the best real estate market I’ve seen to buy into in my 38 years” I about short-circuited. Was Yoda really saying rush in and storm the castle?

As usual, Yoda was speaking more along the lines of “the market is best in 38 years it is… your choice is what?” He then proceeded to show, and did so by citing, The Big Boys.

I will post follow ups to this, but here is the executive summary:

Fortune, April 2011: The Return of Real Estate

Fortune Magazine‘s April 2011 Issue announced it as “the time” to return to real estate. Interesting. I’m so used to media doomsaying about my industry, to see the content line as “Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing” is almost like a time warp. I halfway expect to see the next article on CNN about Kerry and Edwards.

Federal Housing and Finance Authority’s analysis of the Colorado Springs’ Real Estate Market shows it is poised for recovery with lower inventory and stable demand (check and check so far in 2011 with no reason to believe otherwise).

Federal Housing and Finance Authority Annual Appreciation COS 1981 to now

Private Mortgage Insurance, cats who truly have skin-in-the-game, have the downside risk of future depreciation in the Colorado Springs market at only 16.8%, one of the lowest in the country. The affordability index is just over 150%. Case in point: clients who closed this month and took advantage of PMI’s one-time fee-option paid 1.34% at closing to eliminate their mortgage insurance entirely with only 5% down. They had good credit and bought in a strong area, and PMI said “no problem”. Colorado Springs has been removed from PMI’s declining market’s index for over a year.

Then there is Case-Schiller.

Case Schiller Return to Max Value Predictions, Dec 2010

I have not once said that I thought Case-Schiller was being overly optimistic, but the Top Ten percentile of areas where they predict a return to maximum value by 2013 includes three counties in Colorado: Boulder, Larimer and El Paso. That would be us. I don’t agree with them, we have to stop depreciating in order to spin around, and I think a two-year surge that out-paces four-years of declines is unlikely. But by 2014 or 2015… I think that’s probably right.

So is it a great time to buy? I need to flush this out in more teachable posts. The answer is yes, it is a great time… as long as you’re heavily informed, risk-tolerant, can shut out the nay-saying voices, have good credit, a stable job, and you’re not going anywhere for at least three and more like five or six years. That alone ought to cut the 2005 buyer-binge by half if not more.

It’s About the Listings…It’s about Interest Rates

The 2010 Sales Year was characterized by an abnormal addition of listings to the real estate market in the late winter and early Spring. In February, 2010, inventory swelled by almost 10% in a single month with the gain of over 400 units between March 1 and April 1. This was after February added almost 200 listings to inventory. The seven month run up in inventory from January 1 to July 31, 2010 saw a gain of almost 50% in total listings for sale.

 

Early 2010 Compared to Early 2011

While demand never quite equaled the same levels experienced in 2009, part of this reason was the double-sided promise to buyers that their opportunity was never getting away from them: More listings just kept coming on the market, allowing them to prolong their decision, and the steady drumbeat of “interest rates are sure to rise” was an outright falsehood as rates actually dipped below 4.00% in October (a full 1% improvement over February, 2010). These two actions allowed buyers to prolong taking action.

 

In 2011? New listings are coming on the market, but they are beating absorbed by new buying activity. There were 464 unit sales of single-family homes in January 2010 and there were 460 in January 2011. The average selling price of these two months was all of $150 different. In other words: the same buyers were buying the same homes at the same rate. Interesting side note: 2010 had an $8000 tax credit carrot to get buyers to perform. That’s kind of a big deal when $8000 represents a complete first-time buyer downpayment at $210,000 (the January average sales price for the month both years). This year offers no such carrot. But buyers performed in the same manner and volume, absent federal stimulus.

Also interesting: January 2010 gained 170 listings, February 2010 gained 240 listings and March 2010 gained 412 listings. In 2011, January reduced in supply one listing, and February is only up 50 units. Interest rates are about the same as they were this time last year. Again, the drumbeat of “they’re sure to go up” is on the street, and the reality is that they are up close to a full percent in the last four

Freddie Mac 30 Year Avg since 2005

 

months. Why this is interesting: Conventional Wisdom  was that the market was getting better in 2010. This was “proven” because more people were buying homes in the spring of 2010 then the (miserable) spring of 2009. But the quiet under-current in 2010 was that that inventory was increasing at a rate that ultimately had 50% more listings on the market in the summer than the start of the year. While people were briskly buying houses in early 2010, months of inventory, and therefore, seller’s ability to dictate pricing, wasn’t getting any shorter because the ratio between listings and sales wasn’t changing. But so far in 2011, the big bounce in listing inventory has not happened. However, buyers are still buying at about the same rate, and don’t have federal stimulus inviting them to do so.

So far in 2011 (and that’s all of 50 days), listings for sale have increased slightly more than 1% while the rate of sale has remained the same (without a tax credit stimulus) and interest rates after steadily rising for four months have retreated 0.1% in the last week to come back below 5%.

This doesn’t establish a trend. But if you’re a buyer thinking “where are all the new listings I was expecting?”… you’re not alone. If you were hoping to buy based on a 4.25% interest rate, your window might have already closed. Over 30 years, the increase in interest payments from 4.25% to today’s 5.00% on a $210,000 loan is $35,000. I was told the other day by a buyer that the real cost of buying a home is the amount you finance. That is kind of true.

 

Comparison of Loan Values, Interest Rates, and 30 Yr. Paid Interest

 

But literally,  that’s only half of the equation. The price you pay is the amount you finance at the interest rate you finance it at.

 

 

 

 

2011 Annual Forecast: Part I

How is the market?

I love the question, but have to prep anyone I know that I’m as big a windbag as anyone they’ll ever meet in real estate. I can talk the pros and cons and opportunities and pitfalls like anyone.

For the sake of everyone’s oxygen-supply, I’ve found it’s better to show how the market is rather then tell.

Page 2 of the 2011 Annual Report and Forecast

This is Page 2 of the 2011 Annual Report and Forecast.

This page tells everything that is going on in the macro-market. It doesn’t tell you much about what’s going on down the street from your home, but it does tell you what sellers are feeling and what buyers are seeing. This is the pulse of the market.

This page shows four different trends in graph form: Monthly Listing and Sale trends for the last six years; units listed versus units sold for the last six years; months of inventory (sales-rate) for the last six years; and pricing comparisons (all listings, new listings and solds) for the last six years.

As many people know and acknowledge, 2005 was the peak boom year nationally and locally for the real estate market. That is the baseline for comparison for 2010 sold data in all six graphs.

The relationship between monthly listing inventory and monthly sales was most of out whack in Summer 2005 and Winter 2008. The 2005 sales year was characterized by high purchasing and low inventory; 2008 was characterized by high inventory and low purchasing. But in 2009, inventory started to return to more normal levels. Demand picked up. This lead to a more balanced market. This lead to declarations that maybe the end of the slump was at hand (yours truly: guilty).

What few anticipated was the rapid build-up in listing inventory in the first six months of 2010. Inventory increased from just under 4000 to 6000 in less than 180 days. This spike in inventory actually out-paced the massive listing build-ups (on a percentage basis) in 2006 and 2007. Following the expiration of the tax credits June 30th, the lid was coming off of inventory while demand disappeared. July 2010 was the worst summer sales month in decades. It was then eclipsed by August. Quarter 3 sales were off 26.9% from 2009.

The massive drop in Quarter 3 explains why 2010 ended up as the worst performing year for sales in the last decade. Sales began to pick up moderately in November and December, but the four to five month echo behind the expiration of the tax credits radically changed the game. For the year, it was more probable your home listed for sale would not sell, then sell.

Six months is considered a balanced market. That means prices are not likely to go up or down, but stay flat. Less then six months sustained gives pressure to rising prices; over six months gives credibility to falling prices. Again, this is the market as a whole. There are neighborhoods in the $300K’s with 4 months inventory today; there are neighborhoods in the low $200K’s with 10 months inventory today. But 2010 looked more like 2007 and 2008 then 2009 when the year ended with less than six months on the board. It is worth noting that months of inventory has actually declined through the fall into winter on a monthly basis, after peaking at over 10 months in August. But this graph indicates further threats to pricing in 2011.

For my money, this is the craziest graph of them all, and it doesn’t have to do with my color scheme. It’s all lines merging towards some sort of magnetic pole. Since February 2009, average price has steadily increased. Since approximately the same time, new listings coming to market have moderated their expectations. At the start of Summer, 2009, total listing price began to drop. The average list price in the market has dropped by more than 20% in the last 20 months, while average price has risen to 2004/2005 levels again. In the last four months, when listing volume has slackened notably, sellers that are coming on are increasingly coming on in lower price ranges and/or are coming on closer to in-line with price expectations. If you’re looking for a new listing in the $500K’s, keep waiting; not many have hit the market lately. But if you’re hoping that sellers would quit over-pricing their homes, start looking at inventory again. Right now, new to market average asking price and average selling price are identical as 2011 begins.

So what to make of all this?

We’ll keep un-packing the story later this week. This is some of the data. I’d love to make a neat and tidy explanation of all this, but that would be 1.) cheating and 2.) inaccurate. There’s more data to share to complete the picture and generate the forecast.

Ask a Real Estate Guru Wednesday

I was just asked a superb question via Facebook by my neighbor, Lt. Col. Scott Touney:

Ben, I have a question. If foreclosures are being de facto “frozen” due to legal proceedings, are those homes essentially taken out of the available supply? If they are out of the supply of existing homes, does that afford an opportunity for housing prices to increase during the period that those homes are frozen in legal proceedings?
Here is my Podcast Answer:

http://www.wellcomemat.com/wm_video_1/8C46275492