Has the Real Estate Market Hit THE BOTTOM?
A number of people have been asking me about the real estate market lately, and with good reason – there’s a lot going on. The question everyone wants answered is “are we at THE BOTTOM?”
To answer that question, first remember that a bottoming market is a process, not a single point in time. Taking a closer look at how the market topped will give you a wealth of insight and understanding of today’s market conditions. The markets are driven by the collective psychology of everyone involved in the market. When most people believe prices will keep going up, there are more buyers than sellers, weaker supply and stronger demand, and people worry less about paying too much for a property because the price increases will quickly make up the difference. That’s what the real estate market was like in 2005.
As 2005 approached its end, I noticed a small change in the trend. Prices were still going higher, but if you looked closely, you could begin to see changes. Houses that were selling in 4 to 6 weeks started selling in 6 to 8 weeks. In Westwood Lakes (Tampa), where there were only 5 homes for sale in a neighborhood of approx. 650 houses, there were gradually 7 homes for sale, then 8 or 9. More importantly, instead of 50% of the sales taking place with multiple buyers bidding on the property, most homes were selling with only one potential buyer. Within a few months, prices were starting to come back down.
During 2007 the inventory of homes for sale in Westwood Lakes climbed to 39. Unsold inventory around Hillsborough County peaked in October 2008 at 20,942 listings. Houses would sit on the market for months, often attracting only two potential buyers a month to come in and see the inside. Offers came only to the lowest priced homes in the best condition. If a buyer didn’t like how the negotiations were going, they could walk away to find a different property and they often did exactly that.
Fast forward to mid 2009, and you’ll see that market conditions have changed yet again. Many homes near me are now getting shown two to three times per week to prospective buyers, up from twice a month last year. You know those little info sheets in the box near the for sale sign? They are now disappearing by the handful, instead of fading from the sun and getting ruined from the rain like last year. The very best priced homes over the past two months have seen multiple buyers competing, and those homes, after months of reducing their price, are now selling at or very close to their current asking price. As I write this, the inventory of homes for sale in Westwood Lakes is back down to only 9, and inventory in the greater Hillsborough County area is down 27% to 15,273. This year there were 9.4% more homes sold during the month of May than during May of 2008. The Pending Home Sale Index, a forward looking measure of housing sales contract activity put out by the National Association of Realtors, has gone up 3.2% to 84.6 as of May.
The changes in the market are measurable, and the supply & demand equation is shifting again. So far, it’s not enough to push prices higher, but it is bringing some badly needed balance back to the market, and it’s a great start. Once the volume of foreclosures work their way through the system, prices will be free to rise again.