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.
Phil
I am sure glad there is time stamps on food items. The idea of my eggs sitting on the shelf for months isn’t a pleasant one.
Cars cost dealers money after a period of time of sitting on a lot. Not sure of the time frame, but it is the main reason for the “specials” to move it off the lot.
The fact is a home cost’s a lot more than either of these items, and comparing the two is a bit strange, and IMHO is comparing apples to oranges.
I was surprised of the 2001 figures. The number of listings seems high. Maybe the amount of inventory today isn’t that abnormal.
I have 2 homes on my street for sale (one I think is being sold by smarten that the couple is in the process of divorce). I just do not see people buying these homes without markets picking up elsewhere first (as most people are retired on the street). The average Reno job is still far from buying these homes.
I heard a report how people are delaying retirement as well, which is also not helping the market here. So not only do we need the inventory to decrease (although the numbers in 2001 make me wonder about this point) but we need other investment avenues to be doing better.
I am sure glad I bought a home and not an investment that I exepcted to turn around in a few years!
Patience people…. Homes are NOT a liquid asset.
John Newell
A couple of quick thoughts:
First: The $1M – $2M range is relatively the same in the three years shown, as far as percentage sold and average price. It would be interesting to see how much variability this market segment has had over the last ten years.
Second: It is interesting that in March 2001, nearly 86% of the homes listed were in the <$300k market segment, and the average price in that segment was $153,241. This is considerably different from March 2005, when the <$300k market segment only accounted for 37.36% of the listings and the average price in that segment was nearly $70k higher. Currently, the <$300k segment is 57.62% of the listings and the average price is $217,428. So, <$300k listings again account for the majority of listings (at least in March 08), and the average price is falling. Does anyone think we will see the under $300k segment back up to 80%+ of the listings? And if so, will the average price for that segment again drop below $200k?
BanteringBear
John posted:
“Does anyone think we will see the under $300k segment back up to 80%+ of the listings? And if so, will the average price for that segment again drop below $200k?”
I think both are not only possible, but probable. Why? Because wages are stagnant and actually afford less house today than they did pre-bubble. Furthermore, a potentially nasty recession looms. Add to the mix the rapid return of historical lending standards, and prices are headed right back to where they once were (think late 90’s).
Reno Ignoramus
If the under $300K segment were to comprise 80% of the listings in the coming months, that would be quite significant. In any comparison of present prices to 2001 prices we cannot overlook the effect of inflation. What has real inflation been over the past 7 years? I mean real, in the pocketbook, inflation. Not the phony CPI number the government spins out. 5% a year? 35% over the past 7 years? That would mean a house “worth” $300K in 2001 would be “worth” more than $405K today in inflation-adjusted dollars. So if we are to see the $300K segment rise back to 80% of listings, it would be truly significant. If we are to see 2008 statistics look like 2001 statistics, that would mean the market has taken a huge, huge hit in inflation-adjusted dollars.
Could it happen? Who knows. The 2001-2005 Voodoo money fueled bubble was the largest bubble in history. The fraud it engendered was unprecedented. We are years away from wringing out of the market the results of the extraordinary nonsense and foolishness that had become commonplace. Remember, it was only a year and a half ago that an entire industry thought nothing of loaning a half of a million dollars to somebody with no assets, no income, and no job.
Krony
John Newell asks quite a provocative question: could it happen that the market will return to substantially what it was in 2001? And I assume John means in nominal dollars.
That would mean, in effect, that all of the bubble would be drained out of the market. And, as RenoIg points out, it would mean major deflation in houing prices over the last 7 years.
It’s hard for me to envision that, especially in light of all the stops the feds are pulling out to prop up the housing market. Even a year ago that question would have sounded a bit absurd. Today it sounds not quite so absurd. It’s a bit sobering to think about….my house being worth now what it was worth in 2001.
SkrapGuy
The question is hardly absurd, and the possibility is also hardly absurd. I sense I am a bit older than many of the posters here. Let me assure you, unequivocally, that I have owned houses right here in Reno that did not keep pace with inflation over 7 year periods. That is not the least bit remarkable, and it is entirely possible. But please, don’t take my word for it. I invite everybody to spend a little time searching the sales history of houses in Reno in pre-bubble times. Go back and search between 1982 and 1989 for example. Or between 1985 and 1992. Or 1990 and 1997. Or many other 7 year periods. You think a house can’t LOSE value over a 7 year period? Oh please. You must be a 27 year old who has never lived through decades of house values barely keeping pace with inflation, and actually LOSING value over long periods of time. Or your entire home ownership experience must have occured in Marin County. And please spare me the drivel about how it’s different now.
DonC
I’ve enjoyed this forum for a while but this is my first post on this site.
I think BanteringBear nailed the issue when he referenced wages. Residential real estate prices are largely driven by incomes and interest rates. Since the median *nominal* wage is now slightly less than it was in 2001 — the first time government records show a decline in nominal incomes over such a long period — it wouldn’t be surprising if, assuming interest rates were the same (including the availablity of financing products), that the nominal price of houseing wouldn’t also be slightly lower.
Put another way, everyone assumes that housing prices will always go up because that is what has always happened. However, if the increases in housing prices have reflected the fact that incomes have always gone up, then in this new world where nominal wages for the average American are actually going down, the “fact” that housing prices always trend upwards may no longer be true.