Market turn-around
Legend has it that if the Groundhog emerges from its borrow tomorrow (Groundhog Day, February 2nd) and fails to see his shadow, winter will soon end. But if he sees his shadow he will return to his burrow and winter will last another six weeks. Foreseeing the end of our chilly real estate market should be so easy as predicting the winter forecast in Punxsutawney, Pennsylvania. Despite all the negative publicity from the national press, most people are beginning to ask “when” and not “if” the real estate market will turn around. That’s actually a good first sign but there are other indicators of when the real estate market will find its floor.
This is my fourth market correction in 35 years of practice. They all have similarities but a specific predetermined termination date isn’t one of them. Nobody blows a whistle and yells “End of Slump… Time to buy”. Free markets are as unpredictable as the weather can be in the foothills and I have seen narcissus bud in a February’s frost, snowflakes during an Easter weekend and cherry blossoms in early March.
Attempting to buy a home at exactly the bottom of the market isn’t always possible. Life’s major decisions are made despite economic cycles. Families grow, incomes improve or decline, we move for environmental, health and economic reasons. Forrest Gump puts things into perspective in the 1994 Tom Hanks movie, when he said “Life is like a box of chocolates…you never know what you’re gonna get ”. Although we all understand the concept of buying low and selling high, most homebuyers cannot put their life on hold while waiting for the official end of the real estate slump.
There are a number of prospective homebuyers waiting for some significant event or official pronouncement before they commit to buying a home. Obsessed market-timers usually wait too long to buy and miss out on current opportunities under their noses. Making money in real estate is not all about when you buy or sell but often how long the investment was held. We have yet to see any signs that the real estate market is seeking equilibrium but here are a few traditional and non-traditional turnaround indicators that I will be looking for this year.
When the number of homes for sale starts declining, it’s a good sign that the market has ended its trip south. When housing inventory is leaving the market faster than it is being replaced, it indicates that the best listings have already been sold. It also may indicate that discressionary sellers have decided not to panic and move but to remain in their homes. The record number of listings that we have witnessed in the county throughout 2006 and 2007 is partly responsible for driving down selling prices. When inventory declines, prices will rise.
The average time it takes to sell a home is another gauge of the strength of the market. Currently, our multiple listing service has no accurate information on the actual time it takes to sell a listing. If one agent has a listing for six months and it fails to sell and then another agent lists the same property and it sells in 60 days, the time it took to sell that property is reported as 60 days. It should have been eight months. That inaccuracy of reporting market time will be corrected. When it does, we will be able to obtain an accurate average time that it takes to sell an average home. The fewer days required, the better the market.
One of the first signs of declining interest in a new home development appears when builders begin to offer incentives to their buyers. Many builders begin by crediting buyers for closing costs if they use the builder’s in-house lender for a mortgage. Then landscaping and builder interior upgrades become popular. Soon, builder incentives become a creative free-for-all with offerings ranging from new SUVs to swimming pools. When elaborate builder incentives begin to disappear, the market has turned.
Tracking the county’s average monthly selling price might appear to be a good idea in judging the market but averages can be deceiving. Just as individual stocks will decline while the composite indexes are rising, so will individual house values rise and fall despite statistical averages. Higher end home sales have held up the county’s average selling price. A better indication of market turn-around would be the relationship between the listed price of a home and its sold price. When homes begin to sell closer to their listed price, the market is on the mend.
In addition to traditional market trackers, here are some other indicators that the market has bottomed out. When your neighbor, who got into the real estate or mortgage business within the past four years, tells you that they are getting out of the business, the market will start improving. When you no longer get phone calls or e-mail from lenders soliciting your refinance or home equity loan, it’s a good sign.
When an entire month passes without the evening news featuring some poor soul loosing their home to foreclosure, you know things are improving. When home prices are not the favorite topic of water-cooler chatter, it’s getting better. When you hear first time buyers talking about saving for a downpayment or paying off their credit card debt in order to buy a home, the end of the correction is at hand.
A more stable real estate market is likely to occur within the next 18 months. The exact time is uncertain but its occurrence is as certain as spring in the foothills.
This is my fourth market correction in 35 years of practice. They all have similarities but a specific predetermined termination date isn’t one of them. Nobody blows a whistle and yells “End of Slump… Time to buy”. Free markets are as unpredictable as the weather can be in the foothills and I have seen narcissus bud in a February’s frost, snowflakes during an Easter weekend and cherry blossoms in early March.
Attempting to buy a home at exactly the bottom of the market isn’t always possible. Life’s major decisions are made despite economic cycles. Families grow, incomes improve or decline, we move for environmental, health and economic reasons. Forrest Gump puts things into perspective in the 1994 Tom Hanks movie, when he said “Life is like a box of chocolates…you never know what you’re gonna get ”. Although we all understand the concept of buying low and selling high, most homebuyers cannot put their life on hold while waiting for the official end of the real estate slump.
There are a number of prospective homebuyers waiting for some significant event or official pronouncement before they commit to buying a home. Obsessed market-timers usually wait too long to buy and miss out on current opportunities under their noses. Making money in real estate is not all about when you buy or sell but often how long the investment was held. We have yet to see any signs that the real estate market is seeking equilibrium but here are a few traditional and non-traditional turnaround indicators that I will be looking for this year.
When the number of homes for sale starts declining, it’s a good sign that the market has ended its trip south. When housing inventory is leaving the market faster than it is being replaced, it indicates that the best listings have already been sold. It also may indicate that discressionary sellers have decided not to panic and move but to remain in their homes. The record number of listings that we have witnessed in the county throughout 2006 and 2007 is partly responsible for driving down selling prices. When inventory declines, prices will rise.
The average time it takes to sell a home is another gauge of the strength of the market. Currently, our multiple listing service has no accurate information on the actual time it takes to sell a listing. If one agent has a listing for six months and it fails to sell and then another agent lists the same property and it sells in 60 days, the time it took to sell that property is reported as 60 days. It should have been eight months. That inaccuracy of reporting market time will be corrected. When it does, we will be able to obtain an accurate average time that it takes to sell an average home. The fewer days required, the better the market.
One of the first signs of declining interest in a new home development appears when builders begin to offer incentives to their buyers. Many builders begin by crediting buyers for closing costs if they use the builder’s in-house lender for a mortgage. Then landscaping and builder interior upgrades become popular. Soon, builder incentives become a creative free-for-all with offerings ranging from new SUVs to swimming pools. When elaborate builder incentives begin to disappear, the market has turned.
Tracking the county’s average monthly selling price might appear to be a good idea in judging the market but averages can be deceiving. Just as individual stocks will decline while the composite indexes are rising, so will individual house values rise and fall despite statistical averages. Higher end home sales have held up the county’s average selling price. A better indication of market turn-around would be the relationship between the listed price of a home and its sold price. When homes begin to sell closer to their listed price, the market is on the mend.
In addition to traditional market trackers, here are some other indicators that the market has bottomed out. When your neighbor, who got into the real estate or mortgage business within the past four years, tells you that they are getting out of the business, the market will start improving. When you no longer get phone calls or e-mail from lenders soliciting your refinance or home equity loan, it’s a good sign.
When an entire month passes without the evening news featuring some poor soul loosing their home to foreclosure, you know things are improving. When home prices are not the favorite topic of water-cooler chatter, it’s getting better. When you hear first time buyers talking about saving for a downpayment or paying off their credit card debt in order to buy a home, the end of the correction is at hand.
A more stable real estate market is likely to occur within the next 18 months. The exact time is uncertain but its occurrence is as certain as spring in the foothills.
posted by Ken Calhoon at 8:47 AM
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