Realtrends sees National improvement

July 2008
Volume XXII , Number 7
www.realtrends.com
COMMENTARY
On the Road to Recovery
The June 2008 REAL Trends housing market shows that, for the first time in nearly three years, housing unit sales are at the beginning stages of finding a floor and perhaps even heading up. In this months report, the key states of California and Nevada showed increases in units closed, versus the same month a year ago. Also, the report showed that every region was improved from the May 2008 results. Decreases in units closed shrank as did the price declines that had been seen in the past nine months. We expect that as we approach the one-year anniversary of the melt down in the mortgage markets the year-over-year decreases in units closing will continue to shrink and may turn modestly positive in the months ahead.
However, when reading the results from the report it is clear that a major factor in the turnaround in key markets is the decline in the average sales price of the homes being sold. The average price declines in the California and Nevada markets was between 28 and 32 percent, indicating that the turnaround is mostly in the entry level market segment. What we
hear from brokerage firms in these markets are that homes at the entry levels include a significant number of foreclosure sales, short sales and builders dropping their prices to clear out older lower priced inventory.
The strengthening of the entry level market is a critical component of a housing recovery. As the excess inventory gets sold those in the lower price segments have the liquidity to consider a move up into higher price levels. We know from experience that this is the foundation of a recovery.
It is apparent, however, that until the excess inventory throughout the price spectrum gets brought back into line with demand that prices will remain under substantial pressure. And this will not happen until sales professionals and brokerage firms regain discipline in how they price and market listings. The Denver area, where the author lives, cannot be that different than most markets throughout the country. There are simply far too many overpriced listings on the market; listings that the listing professional and brokerage firm both know are overpriced and unlikely to sell in any reasonable time frame.
The Impact of the Internet
For over ten years real estate professionals have both feared and embraced the impact of the Internet. While many thought that it would serve as a platform allowing "outsiders" the ability to disintermediate the brokerage/sales professional/housing consumer relationship in order to place referrals with large referral fees, that hasn’t really occurred. Instead, it is the instant availability of housing market information that is now causing significant challenges for real estate professionals.
In past downturns when the only source of housing market information was the real estate professional, and once interest rates had headed down and the general economy strengthened, real estate professionals would guide buyers back into the market with the message that "now is the best time to buy." And without the independent means to determine values, both current and historical, the consumer would move to purchase under this guidance. And for the most part it worked out fine for both parties.
Today, the Internet allows housing consumers to do their own homework and form their own opinions about values in the housing market. There may be too much information available to a consumer, but these Internet savvy buyers and sellers don’t much care for that view. To many having more than enough is far better than having none as in the past. Sales professionals have to understand that simply saying "now is a great time to buy" will have to be replaced with hard data, facts and figures and trends about housing markets. Trying to hide from this reality is a fruitless exercise.