Have we HIT the bottom of our BAD market?
As part of our commitment to help our clients make good real estate investment decisions, David Harts Realty has developed a number of graphs showing trends in today’s market. These graphs represent Single-family home transactions in Sonoma County over the last four years. Residential Listing and Sales Activity by Month This first chart (See Below) shows a dramatic change occurring in today’s market. Look at the green line “Contingent/Pending” which represents homes that have been placed in the market and currently have a written agreement between the buyer and seller. These houses are in escrow right now and as they close, they will become “Sold” homes. We have never had this many homes in escrow in Sonoma County before, this is significant. Notice how in the past three years, this green line stayed fairly close to the red line which represents “Sold” homes, but early in 2008 these two lines started to separate. This is because the length of time the average home sits in the escrow process waiting to become a “Sold” home has gotten longer. Escrow times are longer today for many reasons including more stringent lending policies and in the “Buyers market” that we have now, buyers are asking for more time to make their inspections and work through the escrow process. More significantly, however, are the large number of “Short Sales” occurring in today’s market. The escrow process for Short Sales is typically four to six times longer than a normal sale. This longer escrow causes a disconnect between the two graph lines. In addition to longer escrows, Short Sales have a much lower success rate than a typical sale primarily due to the banking industry’s failure to develop workable processes to accommodate this type of transaction. This low success rate means that although we are seeing a much higher number of homes going into escrow, many of these escrows will fail and go back on the market, typically as bank owned properties. Still, even with an anticipated higher rate of escrow failures, I think this huge increase in the number of “Contingent/Pending” almost certainly predicts a marked increase in the “Sold” home statistic over the next few months. This increase in “Sold” homes reduces the glut of home inventory in the market today and helps us return to a more normal “Balanced” market. Stay Tuned !!! Residential Total Listings/Sold and Months of Inventory This second chart shows the volume of “Total” listings (blue line). These are all listings in the market at any point in time and include New, Contingent, Pending listings. The red line at the bottom of the chart shows the volume of homes “Sold” over time, which by it’s very nature would be lower than the number of total listings in the market. What is important in this graph, is the RATIO between the number of homes in the market and how many of these homes sell each month. This ratio is often referred to as the “Months of Inventory” in a market. The green line in this graph represents the Months of Inventory for our market and many market analysts suggest that a “Balanced” market for Sonoma County is 5 or 6 months of inventory. Look at the level of this inventory in 2005 which was part of our “boom” market. At that time the inventory level was running very low at around 2-months of inventory. This represents a strong sellers market which tends to boost prices higher than normal and we certainly saw much of that in 2004 and 2005. Over the next few years, this line trended higher and higher as the market cooled. But look at what happened in early 2008; the inventory peaked and has been trending downward since then. While (as of 3-31-09) we were still above the “Balanced” range (we have roughly 7.5 months of inventory), look at the TREND and how much better we are today than we were at the peak of the market in 2008 with almost 16 months of inventory in the market. Over the last four months we have been hovering at around 7-months of inventory which is not too far from a return to a normal market. We will keep an eye to these trends and provide market updates on our website the Santa Rosa Real Estate Blog http://davidhartsrealty.com/wordpress/