February’s much anticipated numbers are in and they were the best I have seen in probably 5 years! There is lots to talk about this month and almost all of it is good for once. I still believe we are bouncing along the bottom but February was one of the good bounces. And while there may continue to be setbacks to the market’s long term recovery, there are lots of positive indicators that indicate that we have laid a strong foundation for stable to modestly rising home values in 2012.
But even with all the good news to talk about the word that is on everyone’s mind is “inventory”, specifically the lack of it in the sweet spot of the market–below $150,000 and in certain neighborhoods. Currently, there is 3.3 month supply of homes priced under $150K, which is just over half of the 6 months that experts consider “normal”. Granted it is a nice problem to have because it means things are selling and it seems odd to add “lack of inventory” to the list of things stifling recovery but I believe it is true. There are ready willing and able buyers out there who want to buy in that price range who are having trouble finding a suitable home. Multiple offers, bidding wars, and selling prices above asking price, all eerily reminiscent of 2005, have become fairly common but almost exclusively in that price range. Jump to the $150-200K range and inventory jumps up to 4.7 months. Over $200K there is 6 months of inventory, still considered a healthy number. Total inventory for all prices stood at 4.4 months a 38.5% decrease from last year’s 7.4 months. Similarly the average days on market dropped 27.5% to 103 days.
Inventory has been falling for a long time, everyone knows that. But what is interesting is that for as long as inventory has been falling, it continues to drop at a very steep rate while sales and particularly pending sales continue to surge. There were 2201 homes (single family, townhome, condo) for sale in Ada County last month, a drop of 32.7% from 2011, while sales for the month, at 482, rose 9.5% and pended sales, at 687, rose 36.3%. I do acknowledge that we had an extra day this February, but feel these numbers are still indicative. Sales normally pick up heading into summer as do inventories. It will be interesting this year to see if there is enough new inventory to cover the seasonal sales spike.
Now to the good part of this month’s report—prices. As I have been known to say, one month does not a recovery make, but we have seen prices stabilize and even had a few tiny increases in the last several months. Then along comes February! The average sales price in February was $177,000 which was not only a 6.6% increase from 2011 but also from January 2012. The 3 month average of sold prices (12/11-2/12) increased 2.4%. After 5 years of drops those are pretty impressive. Similarly, the average price per square foot at $90 was 10.5% above 2011 and the 3 month average was up 4.3%. Sellers averaged 95% of their asking price in February up from 90% (+5.6%) from last year.
So are the increases we saw in February across the board? No there were definitely differences in the results if you look at different types of properties. Here is a simple table to illustrate what I mean:
Percent changes are vs February 2011
|Property Type||# Sold||% Change||Avg $/sf||% Change||3 Month Avg||Avg Sold Price||% Change||3 Month Avg|
|All under $150K||237||+0.4||73||+10.8||+4.5||NA||NA||NA|
New Construction—After sitting on the sidelines for the last several years, new construction seems to be returning to a place at the big kids table. With 86 sold in February versus 50 a year ago, it could soon overtake REO properties in terms of number of sales. Not only were closed sales up 72% but pended sales were up 93.1% (+68.9% for the three month average). However, prices, while higher on average than for existing homes, are not rising as quickly as the market as a whole. I would imagine part of this reflects builders adjusting their product mix more towards the hot segment of the market—under $200K. Continued high materials prices have probably kept the trend towards lower price points in new construction from being as noticeable as it would be if margins weren’t already pretty well squeezed. Nationally housing starts, particularly of multi-family, are being fueled by the strong rental market, which also exists here in Boise.
REO/Bank Owned – Supply is dwindling in a big way from a couple years ago when it seemed REOs dominated the market. In February there were only 73 (-80.6% from 2011) available while 109 sold (-33.9%) and 119 were pending (-39%). That represents .7 of one month of inventory, the lowest since June and the 12th straight month of 2 months or less inventory. As a result it is performing strongly as a category on price and the banks have responded with higher asking prices. At this time last year the average sold price was actually above the average list price. And while sold prices were up 3.9% in February, the average REO asking price shot up 28.2% from 2011.
Short Sales— Overall distressed sales of REO’s and Short Sales still represented 45% of all the closed sales in Ada County. While the supply of short sale properties has also been declining steadily over the last year, in step with the overall market, the number sold has remained somewhat steady, and there is still a far greater supply than of REOs. There were only 73 REO’s available and 109 sales in February, while there were 641 short sales available and 104 sales. This is somewhat misleading as the majority of the 641 were actually “contingent short sale” awaiting 3rd party lender approval. All those “contingent short sale” properties drive the average days on market way up on short sales due the banks continued inability to deal with these properties expeditiously. Short sale days on market averaged 165 days (after being above 200 for a long period) as compared to non distressed properties at 96 days and REOs at 60.
Price Breakdown—As mentioned the so called Sweet Spot of the market has been around $125K, and the overwhelming majority of all market activity is in the lower price point in general.
Sold percentages are of the total number sold in February of 482 and of the total of 687 pending properties
|Price Range||% of Total Sold||% of Total Pending|
You may have seen the recent press putting Boise in the top 10 real estate recovery markets, and while the numbers I have presented above do suggest stabilization and recovery I think there is as usual, some hype involved in those media reports. Idaho still is ranked number 7 in the country in terms of negative equity—the percentage of properties either under water or within 5% of being there. And unemployment and difficult access to credit continue to prevent or discourage buying. One national study I saw recently suggested that banks have begun loosening lending standards somewhat to encourage borrowing but there are a lot of “soiled dove” buyers out there bearing the credit scars of a recent foreclosure or short sale that still won’t qualify for a home loan anytime soon. So while we still have many challenges ahead, it has certainly been refreshing to have some good news to talk about. I believe strongly in the power of positive thinking and building momentum and the latest stats provide some of both. I will also repeat what I suggested in a previous report in the last month or so: If you were waiting for the bottom of the market to buy residential property you better get out your check book because you may have missed it.
I apologize for this report being longer than usual, and my sincere thanks if you stuck with it this far.
As always I welcome your questions and comments and of course, most of all, your referrals. I am also more than happy to customize the graphs below to your particular interests. Just let me know.
Here’s to a strong March!