The past few weeks we’ve written about home sale prices are at their highest level since December 2008, inventory levels are falling, and a breakdown of traditional sales versus distressed sales and how the market is changing. All signs pointed to rising prices the past several months, and that’s exactly what has happened.
Median sales prices are up 15.14% since January in Lee County. How much of this is seasonal? We’ll attempt to answer this question.
As you can see from the attached chart, home sales are seasonal and typically peak in March through May. This year home sales in March almost equaled June of 2009’s recent high of 1,705 homes closed. We’ve been tracking pending sales which are also high which might indicate April and May sales could be high as well, all at a time when inventory is falling.
When you combine high pending activity which leads to closings along with declining inventory naturally you might assume prices have room to go up. This is especially true as home sales are artificially too low because they are so far below replacement cost and there is built-in room for prices to go back up.
Much like Wall Street, it’s difficult to draw conclusions on price gains or losses without also measuring volume. On Wall Street volume is defined as shares traded, and on Main Street volume is properties closed. 2009 was a record year for volume, followed closely by 2010. As you can see, 2011 is off to a good start, but the real test will be can the market reciprocate by bringing enough inventory to the market, or will volume fall off as less distressed sales come to the market?
We believe there is an abundance of sellers who would sell if they could. They don’t want to short sell, but can’t afford to sell at today’s prices so they’re just waiting out the market. Prices are on the rise, but there may not be relief for many sellers because although the market is poised to rise, it won’t quadruple overnight if ever as jobs and the economy are still lagging, not to mention tight lending standards.
So what does the future hold? Most probably we’ll see bouncing prices with a general trend upward. We’ll keep an eye on inventory released by banks. Banks have had some legal issues which has caused them to delay foreclosures but they’ve been working through these procedures the past 7 months or so and we should see more coming beginning in the next 2 months.
The market is absorbing sales. Season is over and many of the 2nd home buyers have gone home although many return in the summer and purchase. 1st time home buyers and investors have been competing with each other for the bank owned bargains, and the investor usually wins with a cash offer. The variables in this market right now are bank owned inventory, jobs, the economy, and oil prices.
Sales could decline if we don’t have enough sellable inventory, and of course ultimately the economy will drive sales once prices return to normal. The future is clear, the path is chosen. What is unclear is the timing and what variables may accelerate or knock us off our track. Stay tuned, and we’ll keep reporting what we observe.