Residential real estate market “unbelievable” again
“Simply unbelievable” was a response I coined back in the late 70’s and early 80’s to respond to questions about our boom and bust real estate cycle. It was an easy way for me to sound optimistic, and yet still tell the truth. When one queried “How are things going”, the easy answer was always “Simply Unbelievable!”
So how are things going in the residential real estate market in Mesa County now? Let me pass on the easy answer, and share some observations with you. First, let’s look at the first quarter of 2012 compared to the same period in 2011. These are numbers pulled from our local MLS (Multiple Listing Service) and while deemed to be reliable cannot be guaranteed. Sales of homes are up 16% in the number of transactions over the same period last year. The median price (which is the middle point between all sales) was down 8% to $156,000 for the first quarter of 2012. However, it’s interesting to note that in the month of March alone the median price rose to $162,500 suggesting that there is a declining inventory of homes in the low end of the market, putting price pressure on the lower end, and some more purchase activity in the more moderate price ranges. It’s too early to call this a trend and it’s certainly not indicative of an appreciation rate. It simply defines the mid-point of sales activity and the prices being paid.
Here’s another interesting number—in our industry we refer to it as the “absorption rate” or put another way, “months of inventory”. Given that there were 181 sales in the month of March, and as of the end of March there were 869 homes on the market, you simply divide the number of homes on the market by the number that sold in March to get the number of months it would take at existing sales rates to use up all the inventory. That number for March was 4.8, say 5 rounded, which means that if inventory and sales remain unchanged, there is only 5 months supply of houses available for purchase. In any other normal time that number would indicate a strong and healthy real estate market. Some might say it is strong, but most would agree that it’s not healthy. What is not obvious in “5 remaining months of inventory” is where the activity is and where it isn’t. For example, in the category of homes sold for less than $200,000 there is only 3 months of inventory (supply) while in the $300,000 range there is 19 months, and in the $500,000-$750,000 range there exists 28 months worth of supply. Since 70% of the transactions for the first quarter are under $200,000, that obviously influences the overall average of five months of inventory and which I would consider a somewhat distorted picture of the market.
So for purposes of casual conversation you can now espouse that while on the surface the market looks strong and healthy with only 5 months of inventory, it’s only because it’s very busy on the low end and still quiet on the upper end. We are also seeing multiple offers on the homes in the lower price categories and in some instances, bidding over the listed price. This begins to put pressure on the existing lower priced inventory. This again coupled with the fact that we’ve also seen increased sales activity in the $200,000+ range, explains why we’re seeing the median price move up.
So what’s my read on the current local residential real estate market? Simply unbelievable! Stay tuned for more to come in future columns.