As of the end of September 2009 the number of homes sold decreased nearly 8% from this time last year (chart 1). The number of homes for sale declined by about 4% and the area experienced an average pricing correction of 9%. On a positive note, there is an increase in the number of pended properties or new contracts of 7% or 43 units. Since June 2009 the number of homes put under contract each month has outpaced the activity of last year in the same months by 17%. Good news not clearly evident in the year to date numbers.
Local Market Prices Decline
Looking at the local markets within Cecil 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 the areas with very few sales, range from 2% in the Port Deposit area to 30% in Earleville. The data also shows that in the areas that experienced greater price adjustment there is less of a decline in sales or an 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. Cecil County experienced a 21% 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 incentive 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 Cecil County, months’ of supply is 16.5 at the end of September 2009 vs. 21.8 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 soaring. 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 Increase: For the first nine months of 2009, there is a 4.7% increase (78 units) in the number of newly listed properties (chart 5) when compared to this time last year. Overall though, the number of homes available for sale has declined by nearly 4% so it would appear that despite this increase in new listings, there have been a greater number of homes that have gone off the market – either sold or withdrawn.
Days on Market Increases: The days on market prior to sale (chart 6) has increased to 172 as compared to 164 days this time last year. The last quarter has trended down with September 2009 at 167 days compared to 185 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. Fortunately the third quarter of 2009 in comparison to earlier months of 2009 is showing less of a discount suggesting that sellers are listening 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 May 2009, Cecil County has experienced a 20% increase in the number of new contracts compared to the same five 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 MRIS. MRIS 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 10/14/09)
