Inventory of Homes for Sale is Low, but that’s not the Whole Story
Thoughts on why this is not a normal market
Palm Coast, FL – September 17, 2012 – I’ve often said that all real estate markets are local. National and statewide statistics are helpful in understanding large shifts in the market but tell little about the neighborhood in which we live. MLS data shows that there are only 721 single-family homes listed for sale within Flagler County. June and July averaged 191 home sales, meaning the existing inventory represents only 3.8 months of sales at existing prices. This number is called the absorption rate.
Absorption Rate is a mathematical measure of the relationship between supply and demand in the marketplace. It’s derived by dividing the total inventory of product (for sale) by the number of units sold in the previous month. The resulting number (absorption rate) represents the number of months it would take to sell the number of homes represented by the current inventory at the current price. It’s a strong indicator of current market conditions.
It’s generally believed that the absorption rate tells us if we are in a sellers’ market, a buyers’ market, or a normal market.
-
Sellers’ Market – Rates 1-4
-
Normal Market – Rate 5-6
-
Buyers’ Market – Rate >7
Absorption rate analysis can pinpoint strong and weak segments of the market. The median selling price for Flagler County single-family homes is $120,000. The market shows the most strength among distressed properties, most of which sell below the median price. Incredibly, there is only one month’s supply of homes available for sale under $120,000in the county. In the range between $120,000 and $300,000, there is four months of inventory available; still a sellers’ market. For homes listed above $300,000, the absorption rate is 17.3.
Belle Terre, Cypress Knolls, Indian Trails, Lehigh Woods, Matanzas Woods, Pine Grove, Pine Lake, Quail Hollow and Seminole Woods have no listings above $300,000. Grand Haven, Hammock Dunes and Ocean Hammock have no homes available below Flagler’s median selling price. But the higher price points within the gated communities are reflected in their absorption rates.
|
Community |
<$120K |
$120K – $300K |
>$300K |
Overall |
|
Belle Terre |
1.3 |
10.7 |
N/A |
3.3 |
|
Cypress Knolls |
1.8 |
4.1 |
N/A |
3.7 |
|
Indian Trails |
0.8 |
3.7 |
N/A |
2.2 |
|
Lehigh Woods |
1.1 |
7.2 |
N/A |
2.9 |
|
Matanzas Woods |
0.4 |
4.0 |
N/A |
2.5 |
|
Palm Harbor |
1.1 |
3.6 |
5.5 |
3.1 |
|
Pine Grove |
1.5 |
5.8 |
N/A |
2.8 |
|
Pine Lakes |
0.5 |
3.1 |
N/A |
2.1 |
|
Quail Hollow |
0.2 |
2.2 |
N/A |
1.0 |
|
Seminole Woods |
0.8 |
4.3 |
N/A |
2.1 |
|
Grand Haven |
N/A |
6.3 |
15.0 |
9.8 |
|
Hammock Dunes |
N/A |
N/A |
25.3 |
27.3 |
|
Ocean Hammock |
N/A |
N/A |
11.0 |
11.0 |
|
|
|
|
|
|
|
Flagler County |
1.0 |
4.4 |
17.3 |
3.8 |
But if the absorption tells us that it’s a seller’s market, why isn’t market behavior reflecting this? We can no longer count on guidelines of the past. There are influences in today’s market that did not exist six or seven years ago.
Underwater owners
Especially in Southern and Western states, the percentage of homeowners that are underwater with respect to their mortgage is significant. Underwater owners affect the market in several ways; all negative. It’s obvious that underwater owners are the source of so many short sales and lender-owned sales. The Flagler County home market has been dominated by distressed sales for the past four years. Distressed sales account for roughly 50% of all home and condominium sales. Nationally, the average is about 30%.
All underwater owners are not forced down the distresses sale path however. Many are able to keep up their monthly payments, choosing to stay in place, honoring their mortgage contract, rather than jeopardizeing their credit rating. Such owners are "frozen in place," locked out of both the selling and buying side of the market. While statistics tell us that new household formation should be placing pressure on demand for housing, that pressure is tempered by the opposite effect of underwater owners.
Shadow inventory
Analysts tell us to be concerned about the "shadow inventory;" the rumored glut of foreclosed homes that banks are holding off the market for fear of depressing selling prices even further. Shadow inventory may be real, but I don’t believe a reliable measure of its size can be found. Real estate foreclosure and transactional data is so fragmented and paper intensive as to defy meaningful analysis. GoToby.com has demonstrated several times the unreliability of data from RealtyTrac, the media’s most cited source for foreclosure data.
Past predictions of shadow inventory dumping have been inaccurate. They likely reflect the media’s "sky is falling" mentality rather than reality.
Discretionary sellers
There is another shadow inventory. It too is impossible to measure. Depressed selling prices have reduced the pool of sellers. Beyond the group of underwater owners is a group I will call "discretionary sellers." They are not underwater but are unwilling to part with their home at its current market price. When prices begin to rise (and they will), each increase will pry loose some discretionary sellers, feeding fresh inventory into the pool of available homes.
Price inflexibility
Like most markets, the housing market is driven by supply and demand. At a fixed rate of demand, reducing supply (inventory) typically triggers a rise in prices. Clearly, the demand for homes in Palm Coast and Flagler County is on the increase. Home sales are up 24.8%. At the same time, the number of homes listed for sale on MLS is down 29%. So where is the pressure to raise prices?
Why would someone be selling a home in today’s market if they didn’t have to? Bingo. Today’s sellers are banks, selling foreclosed properties, short sale sellers shedding underwater properties, and those who feel they cannot wait out the market for higher prices. They are non-discretionary sellers. Prices will begin to increase when sellers feel bold enough to test the market with higher asking prices. Non-discretionary sellers are not so bold. They are much more concerned with completing a sale than in receiving the maximum price.
Financing and credit
Mortgage rates are at all time lows. Still cash sales account for about half of all local home sales and 82% of condominium sales. Realtors and builders report that appraisals for non-distressed homes and new home construction are warped by the low prices of distressed properties. Lending guidelines are also much stricter than five years ago. Cash is king, but not everyone has cash.
August 2012 sales summary
-
165 single-family Flagler County homes were sold via MLS vs. 145 last August
-
The median selling price was $120,000 vs. $125,000 last August
-
41 home sales were short sales with a median selling price of $97,000
-
25 home sales were lender-owned with a median selling price of $90,000
-
99 sales were non-distressed with a median selling price of $146,500
-
76 were cash sales with a median price of $110,000
"Short Sale"
Would you please help me with a short sale issue.
My sister signed a contract to buy a condo at Canopy Walk. The bank accepted her offer, and since she’s paying cash, (which the bank verified), the closing date has been changed times. Origionally, the closing date was 7/26/12 and then 8/26/12, and now 9/26/12.
Why do you think this is happening, the bank, will have to pay back association fees, and any other leins.
Thanks.
excellent piece of work
Toby…..this is an excellent overview of the real estate market….you are too smart to be an agent…thanks…ron davis
You go Toby!!
I have found your ideas to be right on and very insightful! Your site is my "go to" site for the latest overall views of the monthly real Estate trends and the local market. I spend all my free time studying and watching the Real Estate market. I give you a big thumbs up!!
Reply to David
It’s hard to tell why the lender is dragging their feet. It could be that they just don’t have their act together. They may have some documentation problems that could create title issues if not corrected. Or they might still be negotiating with the property owner regarding waiver of default judgment or settlement. I would encourage you to have your agent apply pressure to get a definite closing date.