Thursday, August 18, 2011

What the Single Family Home Sales Trend Since 2005 Actually Means

More than ever, home owners need an agent whose understanding of marketing can position their home and differentiate it from the competition if they hope to sell at the highest net in the shortest time. The underlying reason for this is not always in full perspective, not even for professionals. The reason for this is that the National Association of REALTORS® (NAR) data on existing home sales falls short of providing meaningful long term data.
The monthly trend reports from NAR may serve to show how today's market stacks up against market activity in the short term, but even the three year trend reports hardly reflect the state of affairs five years into the economic downturn. Just saying that inventories are at a given level hardly improves the perspective, especially when no standard is given by which they can be compared. Nor does the data on the decline in housing values provide meaningful context for how difficult it is to sell homes in the current market.

A somewhat clearer picture emerges from other news sources, but even they focus on short term trends. The most notable fact relevant to those selling their home is that a sharp uptick in investor activity, 18% of sales in July 2011, is what is what has been driving the nominal increases in sales since January 2011.

The following data was taken from the San Antonio MLS, 2010 census reports and other sources. It does not reflect the actual state of the market in other locations. It does however paint a shockingly gloomy look into a market in a location that was not as badly affected as most other large cities.
  • There is an eight month inventory of homes on the market, nearly double the inventory in 2005.
  • Only about 16,500 homes will have sold by the end of 2011—down from a high of 24,300 in 2006.
  • If the figures are adjusted for population growth over the same period, home sales will have dropped 36% since 2006.
  • Despite the First-time Buyer Tax Credit, there were about 800 fewer sales in 2009 than 2008, and 400 fewer sales in 2010 than 2009.
  • Only about 42% of the funds earmarked for the tax credit were ever claimed.
Single Family Home Sales Trend Since 2005 (San Antonio MLS)

Year Units Sold* Annual Decline Decline Since 2006 Sales as of 08/15 Sold after 08/15

2005 21947

Basis Date: 2006 24307 110.75% 1.11 15566 35.96%

2007 22339 91.90% 0.92 14593 34.67%

2008 18127 81.15% 0.75 12049 33.53%

2009 17417 96.08% 0.72 10519 39.60%

2010 17063 97.97% 0.70 11108 34.90%
As of: 08/16 2011 10877

Average** → 35.73%
Projected: 2011 16968 99.45% 0.70

15595 91.40% 0.64

* San Antonio MLS

** Average used for projected sales through 2011
*** Metro SA population grew an estimated 8.8% from 2005 to 2010

In addition to bone crunching personal debt and economic misfortune that has sent credit ratings into a downward spiral, consumer confidence is at an all time low. A new paradigm in personal finances is also emerging. People are paying off old debt in lieu of acquiring new debt.
Additionally, lenders have raised FICO scores for most buyers 60 points from the 2005 level to 740, and 780 for Jumbo loans.
A striking difference divides sales data for the high and low end of the market as well. While 8:10 homes priced below $300,000 sell at an average of 97% or more of their final list price in the initial listing period, only 2:3 homes priced above $350,000 sell within the same parameters. On the average, the remainder of the high-end homes remain on the market nearly a year, and sell at 93.2% of their final list price—after being discounted more than 10% below the initial list price

It is almost a mantra in the business that reducing the price will result in a quicker sale, and this all too typical article of faith among even the most experienced agents has resulted in an overall decline in luxury home values of 16% to 18%. Yet the bottom line is that there are fewer buyers in the market, and bargain basement prices on homes and historically low interest rates are not bringing them into the market. The competition for the individual buyer has never been more fierce, and success in attracting a buyer will require a remarkably comprehensive marketing plan that far exceeds the experience or understanding of even many of the most successful agents in the business.

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