Tuesday, January 29, 2008
Read the tea leaves or watch the stats…
Trying to discern the future direction of the real estate market is probably not as difficult as trying to read the future of the stock market, but it’s close to being that difficult. One can play hunches or listen to the pundits on the nightly news; however, like stock market, there are trends that can be spotted in data about a particular market if one tracks it over time.
As someone whose income depends upon the real estate market, I tend to watch the data that is available from the local Multi-List Service (MLS) for the markets that I focus upon. I’ve been sharing some of that data – the Days On Market and Inventory levels for active listed houses on a weekly basis - on a Real Estate Statistics page on my Web site www.themilfordteam.com and information about what’s sold recently in the Milford area on a similar page on www.movetomilford.com. The data on what’s sold allows you to see the DOM for those houses and the average sold vs. ask percentages, as well as the calculated ratio of sold vs. SEV values. The sold price vs. SEV values have tracked down to between 1.3 and 1.5 over the last 2 years (as opposed to the 2.0+ that they were for years).
For 2008 I expanded the data that I track in a wider market area that includes Milford (Village and Township) and the townships of Highland, White Lake, Commerce, and West Bloomfield. I now track on a weekly basis data on the number of houses that sell that week, the median asked and sold prices, the Days On Market (DOM) and active inventory, as well as a calculated number that shows how many months of inventory is active for that week. I still track a smaller market for just the houses that sell weekly in the Huron Valley School District (all of Milford and Highland Townships and parts of White Lake and Commerce Townships). You can also get to these stats from my MIHomeBuyer.com site.
So, if you’re into statistics, you might look for trends in this data that would tell you that the market is turning back towards a better balance:
1. DOM should be trending down. In some price bands that I track DOM is now at or above a full year. In the $400-500K price band in the Milford area, for instance, it is now almost 1 ½ years to sell. In a few markets in the area (none that I currently track on a weekly basis) the DOM for upscale houses is over 2 years.
2. The median sold price should start to trend up, as will median listed price. Right now the median sold price number is greatly impacted by the number of foreclosures being bought. Having to compete against foreclosures has also brought down the median listed price.
3. The number of months of inventory (how long it would take to sell off all of the houses in a market at the current monthly sales rate) should also trend down, with 2-4 months being a lot more normal than the 8-12 months that we are currently seeing (with some areas well over 12 months of inventory in certain price bands).
4. On the sold front, one should start to see the sold prices vs. SEV values creep back up towards 2.0, if for no other reason that assessors may be forced by angry taxpayers to get assessed values back in line with reality. Remember that SEV is supposed to represent 1/2 of the assessed value of the property, so 2.0 times the SEV number should be what the property would sell for at full assessed value. For years that was the case locally. In the market today, we are consistently running at between 1.3 and 1.6 times SEV (varies by area) for average sold prices.
5. As the market stabilizes we should also see the sold/ask ratio creep back up to a more respectable 97% level - right now that ratio is all over the place with an average likely in the low to mid-90% level.
6. The total inventory levels on both of the market areas that I track should also trend down, as excess inventory is worked off.
7. Although I don't track this stat, you'll also see new housing starts trend up, once things return to a more normal state. You'll read about that in the papers and see/hear it on the nightly news.
Since I just started tracking the wider market that I mentioned above, there is only data there for one month so far. For the smaller Milford area market that I’ve been tracking for some time, I saved the last three months of 2007 as PDF files and make those available on the site. I’ll be saving all of the 2008 months, so we’ll have a historic base for comparison later.
I’m no data or statistics junkie, but I do find that having data like this available makes it somewhat easier to discuss with clients what’s happening in the market and what the trends appear to be. Every now and then I still “go with my gut” on a recommendation, because there are factors other than what the data show occasionally at work in a market. Sometimes tidbits of information that one can pick up from around town are as valuable as all of the data on all of these charts. And, isn’t that the real reason that having a local real estate agent is important?
So, go to my Web sites and enjoy the data that I've gathered and put there. Call me if you're planning to sell so that I can do specific research for your area and give you the best advice possible on how to price your house for your market.