Buy now? Or wait??
Posted by Beach Towne Team on Thursday, May 6th, 2010 at 10:45am.
Whether to
buy now, or to wait...
That is the
question on the mind of a lot of people looking at Brevard County real estate
these days, so I thought I'd take a look at conditions. My gut feeling is that NOW is a good time to
buy, and if you can find the house you like at a good price, grab it. I'm
basing that on my monthly reviews of sale pricing and market activity. The reality is that pricing has been quite
stable for the last 12-15 months, with the median price hanging within $5k of
$120k for 13 of the last 15 months. Market activity (number of closings) increased
significantly (about 20% year over year) from 2008 to 2009, and 2010 seems to
be holding dead even with that 2009 pace.
So, at a
simplistic level, current market realities like stable pricing and strong sales
volume figures seem to indicate that the market is pretty healthy and that
investment is prudent at this time. But let's look at some more detailed
information and then answer the question, "Is Now a Good Time to Buy"
through a review of inventory levels, and their effect on buyer and seller
psychology.
Most people
understand that inventory levels are one half of the supply/demand equation and
a prime driver of real estate pricing trends.
First- Let's
take a quick glance at market realities and buyer/seller psychology during the "Boom"
years of 2004 and 2005. What happened was that prices were rising like crazy
and almost everybody wanted to buy something... now.
SELLER'S
MARKET - 2004/2005
A lot of possible
sellers were waiting, and watching prices rise higher and higher, this made
prices go up even faster because the supply of homes was relatively low,
compared to demand. Everybody wants to
buy, not so many sellers... this created a situation where asking prices got so
crazy high that buyers started to hesitate, then things got weird.
TURNING
MARKET- 2006
While asking
prices continued their upward momentum, the actual number of sales started tumbling, and unsold homes started
piling up. Then... a lot of the sidelines sellers decided the jig was up and
jumped in to sell now. Inventory jumped more, price cuts were required to calm
buyer's nerves and price levels began to drop. This brought another wave of
sideline sellers into the MLS and the bubble began to pop because inventory was
skyrocketing, and buyers found the combination of high and falling prices to be
a lot less attractive than high and rising prices had been.
As the prices
begin to fall faster, MORE sellers come forward, wanting to get out... badly. Soon prices are falling even faster (like in
2007), tipping the scales even more dramatically towards the supply side of the
supply/demand equation. Buyers are now
almost totally spooked, reducing demand and sales figures further. Then prices fall more and more, and sales
volume is extremely low (like in 2008) until the tide finally starts turning
(like in 2009) at the point that the pricing levels are low enough prices to
entice buyers off the sidelines to stabilize supply and demand. This is what we have seen in the last 4 years.
Statistical
backup
Let's take a
look at a few quick statistical snapshots of residential market conditions from
June of 2006, 2007, 2008 and 2009. We will look at number of sales (NS),
inventory trends (INV), days on market (DM) and median price (MP). June of 2005, when the market was still red
hot, is our baseline.
June 2006 -
NS = 656 <> MP = $235k <> DM = 98 <> INV = +107
So, in June, 2006 there were 656 sales at a median price of $235k, with an
average of 83 days on market for the sold homes. Inventory increased 107 units
from the previous month. *Interesting Highlight* - June 2005 had 833 closings,
so sales (number of buyers) were sliding quite a bit already.
June 2007 -
NS = 542 <> MP = $195k <> DM = 97 <> INV = -291
So, in June, 2007 there were 542 sales at a median price of $195k, with an
average of 97 days on market for the sold homes. Inventory decreased 291 units
from the previous month. *Interesting Highlight* - Days on market is increasing
a lot, and number of sales has dropped from 656 to 542, despite a $40k drop in
median sale price!
June 2008 -
NS = 491 <> MP = $164k <> DM = 118 <> INV = -253
So, in June, 2008 there were 491 sales at a median price of $164k, with an average
of 118 days on market for the sold homes. Inventory decreased 253 units from
the previous month. *Interesting Highlight* - Days on market still increasing,
number of sales drops again from 542 to 491, despite an additional $31k drop in
median sale price. Even though the median sale price has plummeted from $235k
to $164k, the supply/demand equation is still out of wack. Prices still too
high to bring enough to stop the price drops buyers.
June 2009 -
NS = 676 <> MP = $123k <> DM = 126 <> INV = -448
So, in June, 2009 there were 676 sales at a median price of $123k, with an average
of 126 days on market for the sold homes. Inventory decreased a whopping 448
units from the previous month. *Interesting Highlight* - Days on market still
increasing, but the number of sales is now way up, from 491 to 676, but it took
an additional $41k drop in median sale price to get them off the sidelines.
To recap-
from June 2006 to June 2009 we saw the median sale price drop from $235k to $123k
and had basically the same number of buyers who bought in 2006 as 2009. What's
that mean? Too much confidence then, not
enough now.
And where
are we right now? Let's look at the last 2 full months.
March 2010 -
NS = 563 <> MP = $115k <> DM = 105 <> INV = -18
So, in March, 2010 there were 563 sales at a median price of $115k, with an
average of 105 days on market for the sold homes. Inventory was essentially
unchanged with a drop of 18 units from the previous month. *Interesting Highlight*
- the median sale price only dropped about 6% from June 2009, while days on
market dropped a ton, and number of closings was pretty steady. What's it mean? Prices have dropped enough
now so that buyers feel positive about current valuations and are buying fast
enough to eat into inventory and keep prices from sliding significantly lower.
April 2010 -
NS = 634 <> MP = $110k <> DM = 100 <> INV = +48
So, in April, 2010 there were 634 sales at a median price of $110k, with an
average of 100 days on market for the sold homes. Inventory increased a little,
with an increase of 48 units from the previous month. *Interesting Highlight* -
634 sales is pretty strong, about 5% over 5/09 and 15% above 5/08. Also- the
DOM market number looks like it is heading back into the 90s, which we haven't
seen consistently since 2007.
Conclusion-
inventory has dropped by about 40% from its high in 2006, from around 11k to
just about 6k. Supply and demand seem to
be nearly at equilibrium, although the median sales price is still trailing the
previous year figures each month right now. However, we have not had a single month with a
median price above the year previous since
2005. What happens next? I expect that sales numbers will continue to be very
strong (deals are too good), median prices will increase this summer from current
levels, and have a good shot to increase above previous year levels this winter.
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Share2 Responses to "Buy now? Or wait??"
The nice homes & good deals are disapearing much faster. If you find something you like you had better be prepaired to make an offer, because the next person will like it also.
Posted on Friday, May 7th, 2010 at 1:52 PM.
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Great article! I've forwarded it on to many of my (on the fence) buyers. Thanks! Patty
Posted on Friday, May 7th, 2010 at 11:04 AM.