Watching the housing market on a week-to-week basis this Spring, there’s clear evidence that the US housing market showed signs of short-term positive movement. But are we already on the way back down? The real question is whether this Spring’s activity is merely reflecting normal seasonal effects or a longer term structural effect.
Here are a few factors that we’re watching as we move from the Spring selling season and into the summer heat:
Inventory levels: Using the Altos-20 Market Composite (composed of the same markets as the S&P Case Shiller Home Price Index) as a proxy for the national housing market, there’s a curious trend in the total number number of available homes for sale since January. Total supply has remained flat this Spring, which could be explained by two factors, among others. First, the foreclosure moratorium instituted earlier this year served its purpose – it delayed foreclosures. Second, it’s reasonable to assume that potential sellers in non-distressed situations look at the market prices and said – “You know what, I’m going to wait another year before I try to move up to a bigger house..”
The foreclosure factor could certainly result is a rise total inventory levels once these homes restart through the foreclosure process. Keep an eye on inventory levels as July and August wears on.
Absorption by Price Level: Homes are selling this Spring, but it’s important to know which ones are selling.
Examining the US housing market absorption by price quartile since January 2008, it’s clear the that lowest 25% of the market is seeing a bulk of the activity. Compare the number of homes exiting the market each week and these least expensive homes account for about 50% of total activity and continues at a strong pace through the end of June. This furthers the argument that existing, non-distressed home owners are slower on the draw to put their home on the market, as these lower-priced homes are likely getting snapped up by investors, first-time homebuyers taking advantage of low mortgage rates and tax incentives for home purchases this Spring. As long as absorption levels remain steady, then demand will meet supply offering ongoing stability to the market.
Seasonal vs Structural – Chicago as a Case Example: Take a look at price trends in Chicago since late 2006 through this week. Chicago is a highly seasonal market, with prices accelerating in the Spring after a price decline each Fall. This past week, we’re seeing downward movement in Chicago’s asking prices as we reach the pivotal July 4 point in the selling season.
While it’s easy to get excited with this Spring’s housing activity, there may already be signs that the market’s buoyancy will be short-lived. On the national level, the same downward movement is also evident over the past couple of weeks.
What are your thoughts?
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Good name for sure and good information. For us, the stats from this type of research are not as applicable. Coastal Delaware is a unique market. In general through, I agree with the trends you identify.
Love to see graphs like these for the DC market.
Hi Brandon – Here are a couple of quickie charts for Washington DC:
Inventory Trends:
http://charts.altosresearch.com/altos/app?s=inventory:l,&ra=a,c&q=a&st=DC&c=WASHINGTON&z=a&sz=m&ts=e&rt=sf&service=chart&pai=49012868&co=0&d=
Listings Absorbed:
http://charts.altosresearch.com/altos/app?s=median_listings_sold:l,&ra=c&q=t,u,l,b,&st=DC&c=WASHINGTON&z=a&sz=m&ts=e&rt=sf&service=chart&pai=49012868&co=0&d=
Interesting how the lower middle quartile is moving faster than the lowest 25% of the market there.
You can also play around with some free data on our AltosXplorer application:
https://www.altosresearch.com/altos/features/AltosXplorer.page
Scott:
Nice summary here with some informative data. It has been encouraging to see the increase sales volume, and the dramatically low inventory in some areas (some communities has less than 3 months), but a lot of that seems due to the REOs, and to a less extent the short sales. Looking an price ranges, and parceling out the REOs and short sales would very likely show a vastly different picture. It is very much a wait and see time IMO.
Sorry I missed you talk at REBarCamp Orange County – SFO perhaps?
Hi Jeff – Yep – we’ll be at the San Francisco Barcamp for sure. We’re cooking up a couple of new sessions since we’ve been delivering the “Marketing with Stats” one for a while.
Scott
Glad to see another source validate what we have been reporting for months. the only difference with our data is we report the sale price per square foot change. This factor, in our opinion provides some more depth to analysis and as such report changes ahead of the game.
Altos has always provided credible research to local markets. Keep up the good work and don’t mind the critism when activuty drops later this year. It should and not because the market is weak, but simply because real estate markets do follow seasonal patterns. these patterns have more to do with school years than weather (In the Northeast, weather is an issue).
Our data, correlated with your reports does indicate a bounce back from the lows, but people should not confuse this bounce other than a correction to the “panic” that occurred in late 2008.
Another element that I would like to see is the rate of absorption relating to the existing oversupply of housing. It appears that some analysts are mxing apples and oranges for this component. New construction inventory does not represent all of the sales (more like 25%), so the over supply will take longer than 12 months to absorb.
I am curious to understand the inventory level you list. Does this represent homes listed for sale? What about the properties being held off the market? The natural cycle of annual sales falls around 5 million units a year or 5% of residential dwelling population (it does grow annually as the population) grows). During the boom it reach over 6 million units. So if we adjust for normal times, one can expect the cycle to be fairly stable for the next several years and your statement above will hold true:
Why sell in a down market unless you have to.
Hi John – Thanks for the note and comment. Our inventory tracks the existing homes publicly available for sale (doesn’t include the infamous “shadow inventory” on bank balance sheets for example).
Nice to hear that prices are finally in the rise. In fact, I just read that new home sales were up 11 percent in June 2009. let’s hope this is a trend that continues. Kudos on a well written blog post.
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