You have likely heard by now: Prices are up and inventory is low.
In a nutshell that is the big story this month continuing a trend that started early this year pricewise. Inventory has been on a steep slide for over a year now. There are a few interesting twists and wrinkles worth pointing out:
Inventory of single family homes (includes condos and townhomes) actually bottomed out in March at the lowest level in over 5 years. It has crept up slightly since to 2128 in May but is still down 28.9% from a year ago. The slight increase in available listings may have more to do with a normal seasonal uptick in listings than an actual trend as many sellers choose spring as the time to list their homes. It coincides with the end of the school year and most properties have the best curb appeal in the spring.
The number of closed transactions, which had been rising all year, dropped 7.1% in May versus 2011 and 8.4% from April 2012. To me this is not a reflection of there being fewer buyers in the market but is a direct result of the low inventory. Some buyers were not able to find a suitable home in their price range and/or lost out in multiple offer or bidding war situations. Homes are spending less time on the market, the average is 92 days, -14% from 2011 and sellers are getting closer to their original asking price—97% versus 91% a year ago.
Prices were definitely up. In fact the numbers are pretty amazing at face value. The average price per square foot in Ada County jumped 15.8% vs 2011 to $100 and jumped 7.2% just from April 2012. The average sales price was $212,000 up 23.3% from 2011 and 14.6% just from April 2012. Those numbers are Krazy with a K!
What is really going on here is a dramatic shift in the product mix both of what is available and what is selling. The number of distressed properties particularly REO (bank owned) properties has dropped sharply both in inventory and sales and the number of new construction and non-distressed sales has surged. 162 distressed sales closed in May or 26% of the total number of closed sales. This is a dramatic shift from a recently as a few months ago when 45-50% of closings were distressed. Similarly, the number of distressed properties available has dropped. In May there were only 30 REO properties available versus 249 a year ago, a drop of 88%. REO’s made up only 1.4% of the total inventory. And for 4 months in a row the number of REOs sold has been higher than the number in inventory meaning they are selling almost immediately. The number of short sales available has also dropped sharply from a year ago (-36.3%) while the number closing has stayed remarkably steady over the last year.
Meanwhile, new construction has seen a dramatic resurgence in the last 4 or 5 months. 131 new homes sold in Ada County last month, a 72.4% increase while pending sales are 56.1% ahead of last year and builders’ inventories are down 16%. Similarly sales of non-distressed properties have also dramatically increased. While total closed sales for all single family properties dropped 7.1% in May versus 2011, the sales of non-distressed properties were up 47.4%.
What does all this mean as far as prices? Well, simply put, the market segments with the lowest prices (REO’s and short sales) are selling less and the ones with the highest prices (new construction and non-distressed) are selling more. So the average $/sq ft and the average sales price jump up as a result. The average price per square foot for distressed properties was $78 versus $107 for non-distressed (37.1% higher) while the average sales price comparison reveals an even bigger gap. For distressed sales the average sales price was $153,000 versus $232,000 for non-distressed a 51.6% gap. As I said last month we are selling more high priced oranges than lower priced apples compared to a year ago.
For this reason the average homeowner looking to update what their home may be worth should not use the raw number I reported above of a 23.3% increase in average sales price. No one single home has increased by anywhere near that and the only way to get a reasonable estimate of a home’s current value is the old fashioned way—by comparing sold prices of similar nearby properties.
So in summary, the news is good, in some cases very good, but I caution those of you who have seen some euphoric reports in the mainstream media to take what you hear with a grain of salt. The recent reports naming Boise as one of the top 5 comeback markets and as the number 2 up and coming real estate market were based on the “raw” numbers I referred to above.
On the buy side, although low inventories and high demand have caused difficulties for some buyers recently, by almost any measure today’s combination of low prices and record low interest rates make this an excellent time to consider purchasing a home assuming you have cash or the ability to obtain a loan under today’s tighter underwriting standards.
As always your questions comments and, above all, referrals are welcome. Based on the number of calls and emails I have received lately this should be a great summer for real estate in Boise.