Since last August’s lender implosion, our market has taken a significant hit in performance. Each month’s unit sales have been off somewhere in the neighborhood of 33-46% from each month/year prior. This behavior so far has continued into Spring. And for about a year now, only 4-6% of homes listed for sale in our MLS actually sell in any given month, which means that 94-96% of homes fail to sell every month.

Now that seems pretty dismal, but maybe I’m looking at it through the wrong lens. When you go into Raleys, there are hundreds of thousands of items on the shelves. You need a lot of stuff on the shelves to bring people in because they like to have choices. What percent of their standing inventory do they sell each day? What’s normal for retail? 10%, 40%, 60%, 100%?

What about a car dealership? They have lots of cars sitting around the lot at all times… I wonder what percent they sell through every month?

And what’s normal for housing? Surely we’re down now, no question… but I’m beginning to wonder what normal looks like. So I thought I’d pull out some old numbers and try to figure it out. Compare March 2008, 2005 and 2001:

 

March 2008 #Listed #Sold %Sold Avg $
<$300K 499 164 32.87 217,438
$300-500K 226 66 29.20 367,201
$500K-1M 97 14 14.43 679,636
$1M-2M 30 6 20.00 1,297,205
$2M> 14 0 0.00 0

 

March 2005 #Listed #Sold %Sold Avg $
<$300K 387 364 94.06 221,622
$300-500K 457 272 59.52 383,583
$500K-1M 157 76 48.41 667,902
$1M-2M 28 8 28.57 1,328,313
$2M> 7 0 0.00 0

 

March 2001 #Listed #Sold %Sold Avg $
<$300K 550 389 70.73 153,241
$300-500K 40 28 70.00 350,013
$500K-1M 39 15 38.46 662,397
$1M-2M 11 2 18.18 1,325,000
$2M> 3 0 0.00 0

 

#Listed measures how many homes were listed on the market in that price category that month. What these numbers don’t tell me is the amount of standing inventory sitting around from previous months, the true number of homes for sale at the captured point in time. Unfortunately I don’t have access to that historical data.

I do think it’s interesting that average sales prices in each category haven’t wavered much. But the number of homes listed, sold and absorption rates have definitely seen some variation.

So what’s a normal rate of absorption for newly listed properties in each category? I tend to look toward 2001 for guidance, a relatively normal year prior to our region’s major appreciation gain. As you see, our current absorption rates are way down in all categories. Yes, the lower end is active, but is it active enough to support move-ups going into the higher end?

My concern for our market is that we have don’t have enough activity in the lower end to support activity in the higher end, which leads me to think that prices in all categories, especially the higher end, are heading for further correction this coming year. If buyers don’t buy enough of the low-end homes so that those sellers can move on up the chain of home ownership… what else can possibly occur? Some of the people in the $500K> category must really NEED to sell, yes? And as banks collect more REOs in those categories, they’re going to get serious about pricing these homes to move, which will mean lower prices for everyone, right? And when sales are off 33-46% on a consistent basis, don’t corresponding price drops often occur in 9-12 months?

I would love to hear your thoughts on the matter, especially if you’re one of those long-time local Realtor lurkers who’ve seen a thing or two over the years. I know you read the blog, and I’d love for you to chime in on this one.