February Newsletter – January Closings Remained Low but Pending Contracts are on the Rise

Building permits may be the indicator to watch for a turnaround.

February 11, 2008 – Palm Cost, FL – It’s not east to figure out what’s going on in the real estate market. There are so many numbers and so many ways to look at them. And the numbers are not always accurate. The broad trends are easy to spot. For instance the local housing market has been in decline since some time in 2005 or 2006. Has it reached bottom? When will it start back up again? These are tougher questions to answers. But these are the questions I am most often asked. People know the market is bad, but they want to know if it will get worse and when it will get better. 

On the down side:

• By any analysis, the January 2008 sales numbers are dismal. The median price for single family residential homes (as reported to MLS) was down to $161,500, the lowest since November 2003, but still 17% above January 2003 numbers. Current numbers fail to reflect the true value of homes since a significant number of current sales are bank owned (foreclosed) properties or otherwise distressed sales. They are being picked up by "value" buyers.
• There were a total of 51 single family homes sold, the lowest of any month in the last five years.  
• The number of foreclosure filings remains high. Foreclosure filings do not always result in the lender taking the property. Often the owner is able to avoid foreclosure by becoming current, by refinancing, or other means. But a high level of foreclosures assures a steady stream of properties coming onto the market. The first step in a foreclosure is a lis pendens filing on the property. There were 187 lis pendens filed in Flagler County in January. This compares with an average month of 188 filings for the last quarter of 2007. This number represents all property types including lots, condos, and time shares. (Note: most, but not all lis pendens are foreclosure related. Lis pendens may be filed for other reasons than foreclosure. They signify that a legal action is pending.)

On the up side:

• The number of homes listed for sale remains about 100 homes below the 2007 year end level. A dropping inventory is a sign of a strengthening marker.
• The number of sales contracts written is beginning to climb. 126 sales contracts were written for single family homes in January ’08, Flagler County‘s highest number since May ’07 and well above the 57 written in December ’07 and above the 2007 monthly average of 96. (Contracts written do not always translate into closings. A percentage of contracts do not complete for several reasons, e.g. failure of inspections, inability to finance, etc.) By February 8, 36 residential sales contracts had already been signed.

January’s drop in inventory and the increase in contracts pending suggest that the bottom may be here or near. How long will we have to wait for a general upturn in the residential market? I don’t think we will see an upturn until the foreclosure rate begins to drop. As long as foreclosure remains high, it will be hard to drive the inventory level much lower, regardless of demand. Another possible indicator of a reviving market is building permits. Currently, permit activity is low, essentially limited to contracted construction. Builders are just not putting up spec homes at this time. Spec construction will begin when builders gain confidence that the market is turning around. For reference, here is a table of Flagler County residential building permits (including Palm Coast) for the past seven years. Note that building permits began to show a decline in March 2005, months before sales statistics signaled a downturn. Will it signal an upturn as well?