Tuesday, June 02, 2009

What Part of “Bottom of the Market” Do You NOT Understand?

I was looking over the supply of houses on the market this week in Fairfax County, Virginia and it’s really getting dangerously low. Compared to May of 2008, we have 55% fewer homes on the market – and 20% more contracts written on them.

That leaves home buyers with only a 7-week supply of houses and it’s getting smaller. Officially – we’re in a sellers’ market. For pocket markets (townships, subdivisions, etc.) it’s as hot a market as it was in the peek of 2005-2006 – it’s just that the prices are much lower. Ergo – the opportunity. If you’ve ever heard about buy low, sell high – now is the time to buy low.

The same is true across the country. Pending sales are up all over Florida, in Seattle, Phoenix, Los Angeles, Las Vegas, you name it, and buyers are coming off the fence like they were stung by a bumble bee!

For a macro look at how this can benefit you - consider the suburban Washington DC market of Fairfax Countty. If you are sitting in a house purchased in 2000 or earlier, you’re most likely sitting on a lot of equity that could enable you to move up to a larger home with the upgrades you’ve wanted but couldn’t afford.

I know – this sounds like a sales pitch – but frankly – it’s just the simple truth. Sellers and buyers have a unique opportunity to purchase a house at prices that have been backed up several years and at interest rates not seen for decades (currently in the mid-5% range).

In fact - we haven't seen these kind of rates since they've been tracking them at Freddie Mac (http://www.freddiemac.com/pmms/pmms30.htm).

The average price of a 4BR, 2BA house in Springfield, VA, for instance, sold for $235,665 10 years ago. Today, that same house sells at $371,549. While this price is down from the last five recent years, the pricing has leveled and starting to rise in pocket markets throughout Northern Virginia.

And if you’re wondering if the market has turned around consider this – the average days on market for that house in Springfield is down to 18 days. That is not a misprint – NOT 180 Days, but 18 Days – a little over 2 weeks. Many other towns in the area are in the same situation.

So what?

  • Inventory is beginning its dip downward because buyers are coming off the fence, the foreclosure rate in the Northern Virginia area has been cut nearly in half (see www.CRA-GMU.org) and
  • Regular owners have not yet decided to place their homes on the market yet.
  • We are experiencing multiple offers (7 - 10 is not unusual, we've seen upwards to 35)
  • Escalation offers are back - one of my team members lost a bid after escalating $75,000!


Cara said...

I thought you might appreciate this tidbit.

If you look at the income of renters in FFX county in 1998 versus 2007, based on the ACS (census) survey of the DC area (FFX County is one of the sub-regions) there were 14,000 excess renting households in 2007 making more than 100k year (compared to 1998). That's 14k fence-sitters (some of whom have already bought since 2007, but you get the point).

Even if you compare this to how many more people became homeowners by 2007 than 1998, that's only 11,000 more home-owning households that might have stretched themselves to buy earlier than was prudent. That's still 3k more fence-sitters than potential foreclosures.

It's a seller's market and it's here to stay. Fueled by households making over 100k. (there's no excess for the 50-100k group).

More subtly, the REO's should be concentrated among the streched buyers in the lower-level housing stock, while the demand will be from the higher earning renters. Now's a great time to sell a slightly up-market house. A lot of the 100k+ earners are not going to even consider the starter TH's that are going into foreclosure.

It's right there in the census data on household make-up, staring us in the face.

workhard said...

Hi.. this is an informative post

Idaho Real Estate

Robert Zuniga said...

Great update on your market. It is helpful to know that the country is gaining traction.

Jeff Adams said...

Dear Sir,
I’ve been looking through your blog over the past few days and I found your blog http://commonsenserealestate.blogspot.com/ to be very informative.
I was able to find everything I need from real estate to accident information from links in this site as well as by following external links from this blog.
I can see you have a list of real estate sites useful both for your users as well as end users who visit http://commonsenserealestate.blogspot.com/
I have a site related to real estate with useful information to our visitors.
URL: http://citywide.blogspot.com/
It would be great, if you could spare a few minutes visiting my site. If you find my site to be informative, it would be nice if you could provide us a link.
It would be great pleasure if you can add this link http://www.realestatewebprofits.com/ in your blog http://commonsenserealestate.blogspot.com/ so that it can benefit our visitors.
Thanks for your help and consideration,