It seems on every appointment we go or every speaking presentation people want to know if our market has stabilized and finally headed up. The answer is it seems that way, but our market is still in the process of healing. The more complete answer is we are headed for better days; it’s just a question of where we are in the process.
To illustrate where we are, we made a new chart that shows a timeline of median sales prices compared to sales volume, or # of transactions. Sometimes as prices go up or down it can affect transaction volume, so we thought we’d study that and show you. We’ve also included a graph of the Emotional Housing Cycle we brought to you in a State of the Market Report several years ago.
When we first presented this concept we were illustrating that our market needed to go through a healing process and there would be pain ahead. Back in January 2006 when prices peaked we were in the Euphoria stage. We went on TV in October 2005 telling people this market had run its course and wasn’t going to sustain price increases and people had better start looking at the fundamentals of the market. We pulled investors from new opportunities.
We bring all this up because back then it was a herd mentality, and we weren’t afraid to alert the market to a forthcoming change. People of course made fun of us and said this market was a run away train and we couldn’t stop it, as if we were trying to. Fast forward to 5 years later and you’ll find that we’ve gone through the painful process and we’re probably past Desperation and approaching Hope.
I know if you’re home is in foreclosure or has been foreclosed and times are desperate, you might not be feeling the hope. From an overall market perspective, there is hope. A few weeks ago at the CCIM Outlook a question came from the crowd asking where we are in the foreclosure crisis. I answered I think we’re at about the 7th inning. We do see more foreclosures coming, but they are not at the pace and intensity we’ve seen in years past. Once we get to the point of fewer foreclosures, and fewer short sales, prices can increase rapidly. We’re not there yet.
We’ll also keep an eye out for signs the overall economy is improving, and of course we always need to pay attention to wildcards like foreign oil supplies, interest rates, and financing availability. Fannie Mae and Freddie Mac may be privatized and lower down payment options may dwindle to FHA and VA loans.
2009 was a record year for sales. If you look at the graph, even though prices are down from last months numbers, transaction volume is higher than 2009. 2009 pumped out foreclosures at a record pace, so we probably will see less volume in 2011 simply because we’re seeing fewer foreclosures. Short sales are still a tricky proposition and not guaranteed to close in a timely fashion, if at all. Someday we’ll write a book on all the shenanigans we’ve seen banks play with short sales. We have sold several, we’re just saying don’t always count on banks to do the logical thing or what’s in the best interests of even the bank.
We wouldn’t be surprised to see a rise in median prices next month and good sales volume as we are seeing a backlog in pending sales. We’ll be releasing our 2011 State of the Market Report soon which will cover some of these trends.