As of the end of September 2009 the number of homes sold decreased 17% from this time last year (chart 1). The number of homes for sale declined by about 5% and the area experienced an average pricing correction of 7%. On a positive note, the number of pended properties or new contracts over the last four months has outpaced the activity of last year in the same months by 22% (92 units). Good news not clearly evident in the year to date numbers.
Local Market Prices Decline
Looking at the local markets within Kent County provides us with further insight into the market adjustments experienced and lends further credence to the fact that all real estate is local, right down to the areas within a market (chart 2). Pricing declines, excluding Woodbridge, range from just about 7% in the Caesar Rodney School District area to nearly 11% in the Lake Forest School District area. The data also shows that in the areas that experienced greater price adjustment there is less of a decline in sales or a slight increase as a result. This continued correction will restore the ratio of housing prices to income and provide the stimulus to stabilize our local real estate market.
First Time Homebuyer Tax Credit Stimulates Sales
The $8,000 first time home buyer credit, coupled with historically low mortgage rates and lower prices, have dramatically improved affordability for many potential home buyers. Kent County experienced a 15% increase in the number of homes pended priced $200,000 and below; the price point generally perceived here as the first time home buyer market. It appears that our results are fairly consistent with what you may be hearing from a National perspective as well. It will be interesting to see how the market fares with the expiration of the first time home buyer tax credit on November 30, 2009, although there are ongoing conversations on Capitol Hill regarding a possible extension.
Supply vs. Demand
We typically look at months of inventory as a good barometer of market conditions, that is, how long it will take to sell the existing supply of homes at the current sales rate. Generally speaking, in a balanced market there is approximately five to six months’ supply of inventory. Above that level, market conditions may be more favorable for buyers, that is, there are more homes for sale than there are willing and able purchasers. A supply of less than five to six months generally favors sellers; there are more buyers in the market than homes for sale, driving prices higher. In Kent County, months’ of supply is 15 at the end of September 2009 vs. 24.5 this time last year. As you can see though, months of supply varies at different price points; another factor to consider when buying or selling a home (chart 3).
Median and Average Sale Price Declines
When the market is out of balance, one way or the other, prices can change rapidly. From 2003 until late 2006, the availability of financing to just about anyone created an unprecedented demand for homes, resulting in homes in our area selling quickly and prices rising. Since 2007, the pendulum has swung the other way and as the market seeks balance, prices decline (chart 4).
Housing Indicators
In addition to supply and demand, economists follow three other housing market indicators to assess the direction and overall health of the market: the number of new listings coming on the market; the average number of days it takes a home to sell; and the sales price as a percentage of the original list or “asking price.”
Number of New Listings Decline: For the first nine months of 2009, there is nearly a 15% decline in the number of newly listed properties (chart 5) when compared to this time last year. This has a positive effect on the market – a lower number of homes entering the market decreases months’ supply and helps with absorption.
Days on Market Increases: The days on market prior to sale (chart 6) continues to average over 100 days as compared to 85 days this time last year. The last quarter has trended upward with September 2009 at 116 days compared to 81 last September.
Listing Discount Widens: Finally, homes are selling with further reductions from the original list price often referred to as “listing discount” (chart 7). The increase in this indicator from the same time period as last year reflects the wider gap between buyer and seller during negotiation and suggests that sellers are “chasing” or “falling behind the market” when pricing their properties. Improvements in this barometer will suggest that sellers are beginning to listen to the market when setting their list price.
New Contract Activity Picks Up
Correct pricing will bring buyers back into our housing market – as listing prices have fallen, sales have increased (chart 8). Since June 2009, Kent County has experienced a 22% increase in the number of new contracts compared to the same four months in 2008.
Helping You Achieve Your Real Estate Goals
If your personal situation affords you the opportunity to purchase a home in today’s market, focus on the information specific to your area and price range of interest, be less concerned about national housing trends and don’t assume every house on the market is overpriced. If you are a seller, understand that a sale will occur only when a qualified buyer perceives the price and condition of your home to be a better value than its closest competition.
At Patterson-Schwartz, we have helped people buy and sell in every kind of market. We welcome the opportunity to provide you with the guidance and strategy necessary to successfully navigate a real estate transaction in today’s environment.
(All reports presented are based on data supplied by TReND MLS. TReND MLS does not guarantee nor is it responsible for its accuracy. Data maintained by the MLS may not reflect all real estate activities in the market. Information is deemed reliable but not guaranteed. Data is as of 10/12/09)
