I’d like to address the two most frequently asked questions about the Mesa County real estate market that have come up in the last month: How did 2012 end up? What do you think we can expect in 2013?
Let’s take the first question first since it’s the easier one to answer. The residential market in Mesa County in 2012 was similar to the national market with increased sales activity, upward movement in the median sales price, continued low inventory and favorable borrowing rates.
To be more specific, the number of transactions in Mesa County increased 13 percent in 2012 for a total of 2,574 home sales. That’s sluggish compared to 2011, when transactions were up by 32 percent. But the trend is still going in the right direction. The reasons for this smaller net increase include less inventory, higher median sales prices and some hesitation related to a national election year.
Median prices increased 4 percent. That’s $165,000 at year end versus $159,000 a year ago. This is the first year-over-year increase since prices began falling in 2008.
I would suggest it’s due to the low inventory combined with increased sales activity. We saw low-priced homes under $100,000 quickly leave the market and an uptick in sales in the $300,000 to $400,000 price range.
What about inventory? There’s noticeably less from which to choose. Take a look at how the inventory has changed over the last few years as of Dec. 31 each year: 2009 —1,630 homes; 2010 — 1,363 homes; 2011 — 859 homes; 2012 — 793 homes.
With the improved market, our inventory is half of what it was just four years ago. Many sellers still can’t enter the market because their mortgages exceed the value of their homes and they’re not inclined to write a check for the difference. These people are current with their mortgage payments and have good jobs, but would be in a negative equity position if they were to sell.
What happened to interest rates in 2012? They fell even further. Interest rates were quoted as low as 3.25 percent on 30-year loans and 2.75 percent on a 15-year loans.
Homebuilding activity increased 36 percent in 2012 over 2011. Earlier in the year I projected 400 permits. We hit 387, so I missed it by 13. But the good news is that 103 more homes were built in 2012 than 2011. I think it’s primarily because of a low inventory of existing homes, favorable lot prices and lower labor costs for builders.
Finally, there’s the affect of foreclosure activity. In 2012, foreclosure filings in Mesa County were up 3 percent over 2011 (contrary to national numbers) and sales were down
1 percent (a smaller decrease than nationally). Foreclosed properties accounted for 35 percent to 40 percent of all sales of all property types. The primary reason for the disparity is we lagged falling into the recession and also have lagged in the recovery. That said, we’re still down from the peak year of 2010 by 27 percent in filings and 10 percent in sales.
Now, what do I expect to happen in 2013? The short answer is more of the same. But let’s qualify that, be more specific and even go out on a limb a little bit. First, though, let’s assume there’ll be no adverse effects from government action or inaction or any national or international catastrophes.
I project that housing transactions will increase, but at a slower rate — 8 percent to 10 percent over 2012. That would suggest close to 2,800 total homes sales in 2013.
I also think the median price should see its second year of increases and at a higher rate than last year. Let’s say the price increases 8 percent to $178,000 by the end of the year.
As far as inventory, I don’t think we can go any lower. I think we’ll see more sellers entering the market. By the end of 2012, I think we’ll have around 900 available homes for sale, an increase of at least 13 percent. If that happens, it’ll be the first time we’ve seen an increase in inventory in four years.
Regarding interest rates, I keep hearing the Federal Reserve promise to keep interest rates low through 2014.
I think interest rates will remain the same until the latter half of 2013, perhaps the fourth quarter. Then they could move up. As the economy recovers, I expect upward pressure on rates as simple supply versus demand influence. Even with a small increase, rates will continue to be attractive for home purchases through the next couple of years.
What about new home construction? I think we’ll see continued activity, but a slower increase than 2012. The primary reasons include diminishing access to cheap lots and the unavailability of qualified labor. I think 75 more new homes will be built for an increase of 19 percent. I’ll pick a number — say 465 new permits for 2013.
Finally, what will happen with foreclosures? I think we’ll see the rate drop. With the continuing political sensitivity to foreclosures, I think we’ll see more bank work-out situations with homeowners. Banks have learned that negotiating a settlement (short sales) verses a foreclosure can save them money, so I think we’ll see less filings and foreclosure sales in 2013. Let’s take a best guess at less than 900 filings and less than 200 sales.