Are we out of the slump?

October saw higher number of sales in Williamsburg/JCC than September. But was it a trick or a treat?

Is post Halloween humor really necessary? Who knows? But, you may get a chill by the time you finish reading this.

If you said that the above figure represents the geo synchronous orbits of eight NASA satellites, I am worried about you. You should seek help.

The numbers 1 to 12 represent the months Jan. to Dec. The different colors represent different years (shown above the graph). The point where the color line intersects (meets) with the number (month) line represents the number of closed single family homes at that time. Simple – right?

Do we really need all those lines? Not really. I wanted to show you how I came up with the Black line. The black line represents the average from 2001 to 2007. It may give us a reference point if nothing else. It may even give us an idea of where we may be headed.

Let’s clean up those lines and just deal with three lines. The average line with last year and so far this year.

The Average line can be a good indicator of market behavior. After all it does take into account the last seven years. If the region’s economy changes drastically all bets are off. I think one of the Economics professors from William & Mary can explain that better than I can. What I can do is share my observations. I see the line this year move in the same general direction as the Average line. September figures, on the average, have been lower than Augusts’ while October sales, for the most part, have been higher than September. This year has not proven to be the exception to the average trend. I know past performance is no guarantee of future results and no one has a crystal ball to predict the market. However, we also can’t bury our heads in the sand either. The trend does show lower number of sales in November than October. Should you be scared? Not if you understand the nature of the beast, which you do now.

How are we doing so far?

As promised, we are going to look at how the residential real estate market is doing in Williamsburg/James City County. We saw how October has been this year and years past. Let’s look at how the figures from January to October compare.

Prior to this year we have been averaging 1221 sold properties from Jan. to Oct. The number of properties sold this year from Jan. to Oct. is off from our average. However, it does seem that more properties have sold this year compared to last year. Is the market really as slow as we hear in the news? I guess we all have to do our own research.

The thing about numbers is that you can look at them from various points of view. Here we are looking at activity in price ranges. The Green line represents the number of homes sold from Jan. to Oct. of this year in a given price range. The Blue line represents the number of properties available on the market in those price ranges at the end of October 2007.

Certain price ranges are seeing more activity than other. More than half the properties sold so far this year have been under $350,000 while about 40 properties have sold over $750,000. This really isn’t all that unusual. There has always been higher activity in the low to mid price ranges due to greater pool of buyers in those price ranges. As the price goes up the amount of buyers that can afford the higher prices decrease. Add to that the current mortgage climate and you get a better picture.

If you have a home on the market between $750,000 and $799,999, it doesn’t mean you have to price it under $350,000 to get it sold (it certainly would get the job done but I wouldn’t recommend it). What you may want to consider is looking at market activity in the price range above and below. It may be possible to reduce the competition by simply adjusting your price a little. Who knows, maybe that is what will make your house go from Blue to Green.

October 2007 – Could it be historical?

Market movement is best determined by looking at market activity. One ‘activity’ in particular – under contract properties. Closed properties are history; some of the properties that closed this month could have gone under contract last year. I think that looking at under contract properties gives us the best indication of the market. The chart below shows the number of properties that went under contract in October. As always, the numbers come from Williamsburg Multiple Listing Service and reflect activity for single family properties in Williamsburg and James City County only.

Another interesting thing to look at is the price ranges where the activity is taking place. If there is little activity in a particular price range and you happen to have a listing in that price range you have some decisions to make.

Of course this is just a single month but it helps to see how the market moves. We will look at the same figures from January to October in the next post.

Should I buy a home now?

My friend Carla asked me the other day, “Do you think it’s a good time for me to buy a home now?” (She actually knows the difference between it’s and its)

I know I am not supposed to do this but I answered Carla’s question with a question. I asked her, “Do you ‘want’ to buy a home now?” She has to figure out the answer to that question first. If she isn’t in the market to buy then it really doesn’t matter when she doesn’t buy. One of the local furniture store is having their ‘Once in a Lifetime’ sale (you know the one, they have a similar sale every weekend). I don’t really care how cheap their dining room sets are – I’m not in the market to buy. Conversely, if I needed a dining room set I may have to check them out. Of course, everyone needs a place to live, or what George Carlin calls a place to put all your “Stuff”.

The decision to buy or not to buy (Shakespeare anyone?) depends on your situation. Carla has a great job, she has savings for a down payment, and is currently renting. Her lease is coming up for renewal – generally that means a rent increase. She may be in a situation where she might need to consider buying a home. Market conditions are certainly on her side. Interest rates are still relatively low and we don’t have the shortage of inventory that we did in 2005. She has plenty of properties to choose from, giving her some bargaining power as well. If she doesn’t find a property at the terms that are comfortable for her she can simply go on to the next property. Smart sellers have noticed the market shift and are getting very creative with the incentives they are offering buyers. Home builders are even offering some great incentives if she wants to purchase new construction.

Carla has owned a home before. If she were a first time buyer I would have suggested a Rent vs. Buy calculator to her. She knows of the tax advantages of home ownership; let’s face it, who doesn’t want to pay less to Uncle Sam? She knows that owning a home is an investment – she made a nice little profit when she sold her last home. She also knows that when she writes that rent check every month she is never going to see that money again. She realizes that she still has all the same costs she had when she owned her own home (mortgage payment, property taxes, maintenance, insurance, etc) – her landlord has already figured all that in when he set the rent amount. It reminds me of what my friend Mildred always says, “Whether you rent or buy, you pay for the house you occupy.”

So why is Carla wondering if she should buy or not? She is getting a promotion at work. Unfortunately, it might also require her to move to North Carolina. She will know more in couple of months. If she has to sell a home in few months it may not be in her best interest to buy now. Real estate is a long term investment. The day Carla finds out that she doesn’t have to move, and, is going to be in the area for few years will be the time for her to buy a home.

Is the sky falling for everyone?

It seems not a day goes by lately without the news media telling us how home values are dropping like rocks. How much truth is there in the headlines?

Before we look at the answer to that question we have to consider the business of news media. Yes, it is a business. News outlets fight for readership or ratings. The more people a news outlet reaches the more they can charge their customers that advertise with them. They make their money from selling advertisements, not “news”. But, you need “news” that gets attention. How do you create the attention? With a sensational headline of course. A headline that reads ‘Williamsburg Home Prices Drop’ may just get the attention of people in Williamsburg.

Actually, the headline may be somewhat accurate. However, we have to study this more. Let’s look at the average sales prices for homes in Williamsburg/JCC.

It is true that average sales price in Wbg/JCC is about 3% lower than that of 2006. Does that mean all home values are 3% lower? Only if the sold home in 2007 was purchased in 2006. If the home wasn’t sold in 2007 it has not lost anything yet.

The 2005 National Association of REALTORS®’ profile of Home Buyers and Sellers indicates that typical home sellers owned their home for seven years before selling. In Virginia, 44% of Home sellers in 2005 said they had owned their home for more than 7 years. Price drops don’t have the same effect on every seller. The sky may not be falling for everyone.

Jan 1st to Sep 30th Single Family (Att & Det) Homes in Wbg & JCC

Year      Avg. SP    Yr to Yr Change    Change since 2000

2000    $218,604

2001   $212,866         -3%                              -3%

2002   $228,789          7%                                 5%

2003   $259,297         13%                             19%

2004   $307,505         19%                             41%

2005   $362,015         18%                             66%

2006   $379,175            5%                             73%

2007 $368,355             -3%                             69%

Typical sellers may look at this and say, “My house was worth more last year than it is this year so I am losing money”. It may seem like a logical argument. However, there are two things to consider. First, the home was not on the market last year. My dad’s Enron stocks are not worth much these days; they were worth something several years ago. He did not want to sell those stocks when they were worth more (Yes, he regrets that now) – he wasn’t a seller then. Second, unlike my dad’s Enron stocks, his IBM stocks, which he purchased over 30 years ago, are still worth something. He doesn’t worry when IBM stock drops few points – they are still worth more than what he paid for them (only if he decides to sell, until then it is just paper). Home sellers too must look at what they paid for the home and compare it to today’s market. You can argue the merits of using the words ‘Rocket Science’ and ‘Home Values’ in the same sentence. But, Einstein’s Theory of Relativity does come to mind, it is all relative – and I am not speaking of uncle Bob.

FALL – Season or Market?

Single Family (Att. & Det.) homes in Williamsburg & JCC only.

So what’s happening in the residential real estate world in Williamsburg & James City County? We have 14.04 months of inventory at the end of September. It means that if no new properties were put on the market, our current supply would last us about 14 months. In August we only had 7.8 months of inventory. Did that many new properties come on the market? Actually, we only saw 167 new properties come on the market in Sept., which is the lowest monthly total so far this year. So what is going on?

Unfortunately, there is another ‘lowest monthly total’ at work here. We have only looked at the supply side so far. September also saw a record low in the number of sold properties. There were only 76 properties sold in September which was the lowest monthly total for the last two years.

So why are people not buying homes? The National Association of REALTORS® says it is a great time to buy a home. Interest rates are relatively low and there are lots of homes to choose from. Home buyers now have the negotiating power that they have not had in the last several years. There is mortgage money available. So what is stopping buyers from buying?

Home buyers have everything on their side except confidence. The news media tells them that banks are foreclosing on homes left and right. Homes are depreciating like a brand new car being driven off the lot. We have to get the confidence back. We have to educate buyers on the long term benefits of home ownership. Home buyer confidence is the key to turn this market around. The best way to increase confidence is through education.

How are you educating your buyers (if you are an agent) or yourself (if you are the buyer)? Share your comments so we can all educate each other.