Three Signs 2013 will be the Hottest Housing Year Since 2005

February 19, 2013

by Mike Simonsen


In January I penned an article for HousingWire magazine (paper! registration required) where I guided readers to watch for signals that the Fiscal Cliff could derail the housing recovery. A month later and the signals are strong: The Fiscal Cliff is long gone. The 2013 housing market is on fire, across the country, and the leading indicators point to home price appreciation far stronger than the 10% national jump of 2012.

Three Powerful Leading Indicators

Housing market headlines tend to focus on the traditional gauge of the market – prices of homes in completed transactions.

Fortunately, the active market of homes listed for sale is rich with signal about where prices are going in the future. Perhaps the most insightful of these is a stat we track closely: the percent of homes on the market with recent price reductions.

Contact us if for local or national details on any of these metrics

1. Percent of Homes with Price Reductions

Percent of homes with Price Reductions Percent of Homes on the Market with Price Reductions in the past 90 days. Single Family Homes. Altos 20-city (national) composite. Data as of February 15, 2013

To understand price reductions, think of your personal experience with homes for sale. In “normal” markets, a little more than a third of homes (38%, in fact, nationally is common), are listed overpriced – many intentionally, to “test the waters”.  When they don’t sell, the asking price is reduced.

In weak demand markets, price reductions climb to over 40% and even over 50% of the active inventory – meaning half the homes on the market have had to cut their asking price in the last 90 days. Conversely, in the hottest markets, price reductions may be required by only around 15% of the stock. This means that demand is so strong that homes have buyer competition and prices are rising week-over-week.

We’ve had a hot year for housing. Demand is high and inventory low, and price reductions as of February 15, 2013 are at 28% nationally. Pent up demand is buying homes more aggressively than sellers expected. This is a significantly bullish leading indicator.

2. Price of Newly Listed Properties

Price of New Listings Median Price of Newly Listed Properties. Single Family Homes. Altos 20-city (national) composite. Data as of February 15, 2013

The pricing of newly-listed properties are a terrific signal of where a market is headed. To calculate this statistics, we snapshot prices for every property every week. Like watching the first grapes on the vine, the prices of this week’s new crop is the signal for the coming season. Why is PNL so insightful? It’s a textbook example of the “wisdom of the crowds” phenomenon. Real estate agents listing a property determine the optimal list price taking into consideration a number of factors, including everything they know about local demand levels. Those realtors, in aggregate, know exactly where to price their properties to sell. Therefore, when we observe the newly listed prices climbing, we know the Realtors are telling us something.

3. Median Days on Market

Price of New Listings Median Days on Market. Single Family Homes. Altos 20-city (national) composite. Data as of February 15, 2013

The time it takes to sell a home is a much more intuitive signal of demand than the above two leading indicators. Homes move faster when there’s more demand.

But watching Days on Market (DoM) for an area can be deceiving, for a nuanced statistical reason: most often when you hear about DoM, the number reported is an average. Averages have this nasty habit of being skewed by outliers. In this case, garbage properties that sit around the market forever skew the average DoM higher. So instead I like to look at median DoM (the middle). Median DoM reacts more quickly in recovery markets. When the good properties are going quickly, the Median DoM falls. Guess what? Across this country Median DoM is falling. Steeply.

Demand is high, supply is low. Prices are taking off. 2013 is going to crush it on home price appreciation.

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