Remarkably High Average Sales Price and Remarkably Low Inventory
Last week this column wrote an real estate forecast article titled "Dec, Real Estate Forecast: Up" in which it was projected that new construction starts, units under construction, and completions would show improvement over December of 2016. It was also projected that New home sales would improve over December 2016 and that existing home sales would improve, as well. We did receive good news last week. The article "Starts up 8% from 2016" went into the details how starts, units under construction, and completions did improve over December 2016 and how 2017 was better than 2016. The report was overshadowed by the looming government shutdown. It was also projected that we should see over 439,000 existing homes sold during December. It was thought that the top limit would be 471,000 units and that we could expect roughly 450,000 units sold. It was also projected that we could see a new December record average sales price. What was revealed in the data released today?
Units dropped from Last Year - Still higher than 1999-2001 and 2007- 2014. The headline data is that this was a drop from the sales from last year. This is true. The projection was for strong sales. There was also hesitancy in that forecast due to an existing home shortage. We have had higher levels of sales during December.
New Record December Average Sales Price. The average sales price has moved higher. The Law of Supply and Demand proposes that in most situations if demand is high and supply is low then the price will increase to compensate. This is what is being seen.
The Rolling Year and Current Year data is 5.511 million units sold. This is an improvement from last year's level of 5.452 million units. This is remarkable because we have had an inventory shortage for the past year. It is even more remarkable when you consider that the units sold data this year was better than 1999, 2000, and 2001.
Inventory is the lowest it has been since December 1999. The data available only goes back to 1999. It was thought that the inventory could drop below 1.5 million units and it did. We had 86.5% of the units for sale that we had during 1999. We had 6% more sales. This is an untold story. Inventory matters. We could be selling more homes if more homes were available for sale.
Distressed sales are still 5% of the market. Often when viewing homes Realtors will run across vacant homes. Homes are vacant because the owners built a new home, bought a new home, or have relocated out of town. They can be vacant due to a death. There was a bifurcated market during 2011 while my family was looking for homes in California. There was the existing home market and the distressed home market, Distressed homes were mostly bank sales. This month's report states that this is down from last year's 7% distressed sales level. Distressed sales depress the sales price.
The existing home sales data is very important. It tells us where we have been. It can point us towards where we may be heading. More real estate sales mean more movers, more mortgage loans, more title insurance, and more financial services jobs. More real estate sales means more furniture sales, more electronics and appliance sales, more purchases and home and garden sales, and sometimes even more automobile sales. The problem we have had with the housing recovery is that buyers may still be tainted by a bankruptcy or a foreclosure that happened during the "financial meltdown." Inventory is king. We may continue to see elevated prices due to a lack of supply. Sales may be reported as sluggish if the inventory level is ignored.
All real estate is local. You need to talk with a Realtor who is familiar with your market. Home sales depend on condition, location, and motivation. It is not as simple as the old adage "Location, Location, Location." A very motivated buyer who has to buy "now" may pay more from a home than a less motivated buyer. A motivated seller that needs to sell may sell a home for less than a lesser motivated seller. A fair sales price is found when a person who wants to buy meets a seller that wants to sell. Homes can vary by style and age and school district and neighborhood. There is more than the sales price negotiated in a sale of a home. Condominium values will vary by building and unit style. Even in tight inventory markets there can be oversupply. Contact a Realtor to find out what is happening in your marketplace.
It's the economy. It's the economy. It's the economy.
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