The State of the Real Estate Market | October 2012
The title of the article could have been, The House Recovery has begun! It’s true the housing recovery has finally began to take hold and it’s a phenomenal thing to witness after 4 years of consistent price devaluations, short sales, and of course REO’s. The U.S. housing recovery is not equal in all places, it started in several markets in California and the Phoenix market back in January – February 2012. Like many other trends that come from California it takes some time before those trends come over to the rest of the country and the housing recovery seems to be following this exactly. What’s important for all Realtors to know is how the recovery is taking place and how will the changing market conditions affect their overall business and marketing activities, and of course I will have all your answers……
The housing recovery has begun and is now in it’s first phase but this doesn’t mean the housing problem is now fixed and we are back into a traditional market. It’s far from that. This housing recovery has started in 2012 but may take until 2014-15 to fully recover to some sense of a normal market for much of the country. Price appreciation in this recovery will be cautious and slow and it’s still to early to tell how much prices will appreciate. Finally, the recovery will not be equal in all places even within the same markets. For example, on the south and west sides of Chicago we will still see depressed prices and high rates of foreclosures in 2013, but several miles away in Chicago’s Lincoln Park or Wicker Park neighborhoods we will see tightening housing inventories, multiple offer situations pushing up prices, and shorter market times.
The State of the Market | October 2012
We are seeing a drop of REO’s coming on to the market across the country. At the same time we are seeing an increase in the number of Short Sale transactions. Combined this is causing some price appreciation across the board because a Short Sale transaction typically accounts for a 10%-15% price premium over the typical REO.
Furthermore, we are seeing fewer “Equity Sale” transactions coming onto the market in 2012 than in previous years. This suggests that sellers believe we are approaching the “bottoming out” of the market and they are waiting to see how much home values appreciate and what kind of housing recovery will take place.
Overall sales activity has increased in 2012 across most markets. This is being fueled by both Investors and Retail Buyers who also believe the market is bottoming out and want to take advantage of the historically low price points which are likely not to return if the housing recovery to takes a permanent hold.
All of this is causing housing inventory levels to drop across the country. In California, many markets such as San Mateo County, Contra Costa County, Placer County, The Santa Clarita Valley area, and several other markets in between LA and San Diego we have seen inventory levels drop to 1-3 months of housing supply. This is an incredible number to reach at this time! To give you some comparison, during the boom years of 2004, 05, & 06 it was typical to see inventory levels at 3 months of housing supply in most markets.
With inventory levels so low in these markets out west, every property is receiving multiple offers and going under contract for list or over list price, including short sales. For a Realtor, property listings are essentially gold. New constructions starts are also on the rise in the west and according to the Atlanta Federal Reserve in it’s June-July 2012 “Beige Book” report it’s estimated that this strong housing activity occurring in California and Phoenix will actually contribute positivity to the GDP for 2012!
We are also seeing housing supply drop significantly in many other markets outside of California and Phoenix. Although housing inventory levels are not as low as what we are seeing out west if the trend continues we will see these markets reach the same low inventory levels in the 3rd and 4th quarters of 2013.
What does this all mean?
Fewer REO’s, more Short Sales, increased sales activity and fewer Equity Sales are fueling the beginning phase of the U.S. Housing Recovery. The markets where this is mostly being played out are in both California and Arizona right now at the time of this article being published. This same trend has also started in the Midwest, Northeast, and the South. However, in these markets the trend will take hold at a much slower pace.
For example, in my market of Chicago, IL we have seen our housing inventory levels drop by half from 12.5 months of housing inventory in September of 2011 to 6.6 months of housing inventory in September of 2012! This is a huge drop in housing supply over the course of just one year. Currently, many real estate professionals and the community at large are unaware of just how much the local market here has changed because we still have a decent level of housing supply. As this number continues to drop and more deals become multi-offer situations these groups will become quite aware of the new housing situation and changing market conditions.
The low housing inventory levels being seen in the California and Phoenix markets are forcing Realtors to change and adjust their marketing strategies in order to attract more sellers. Low inventory numbers and strong sales cause a tight inventory supply and mean more listings will be in multiple offer situations leaving the seller in a stronger negotiating position. Realtors in these markets must do two things to satisfy the needs of sellers in a strong position. First, they must use every tool available to properly market and sell the clients listings which means a combination of traditional and online marketing techniques. Second, Realtors must demonstrate their ability to effectively use these techniques to sell a prospective clients property.
Every Realtor should be aware of these trends and where exactly is their market in comparison. Next, in order to better serve the buyers and sellers in your community get the information and data about your current market (sales trends, housing supply, closed sales, number of REO’s/Short Sales) and keep following it. Realtors need to be able to answer questions from both buyers and sellers about where the market is heading and what direction prices will be headed to. Finally, make the appropriate changes to your overall business and marketing plans to prepare and take advantage of the trends and the 1st phase of the housing recovery.
Housing Prices | How much price appreciation can we expect to see?
Housing prices will increase with lower housing inventories and strong sales. However, price appreciation is always slower to react towards current market conditions. Furthermore, we are in a market which is recovering from the problem of having inflated and overvalued home prices to the point that it completely crashed the housing market and the U.S. economy. Price appreciation will be slow and cautious. Currently, it is too early to tell exactly what the Price Appreciation Percentage’s will be across the board in California and Phoenix. I expect that in the 1st quarter of 2013 we will begin to have enough data available to confirm an actual figure for the amount of price appreciation in each of these markets.
Realtor Marketing Plans for 2013
When the housing market crashed in 2007 it was quick and devastating to any person owning real estate. The housing recovery of 2012 is occurring at a much slower and cautious rate. Even more incredible is that with a consistent high unemployment rate of 8% and a slowing economy (GDP is predicted to be under 2% for 2012) the housing market is pushing forward in a positive direction.
2012 was the year of the short sale (I predicted this in 2010) and in 2013 we will continue to see short sale transactions overtaking the amount of REO’s available in the marketplace. We expect to see short sale transactions begin to decrease in the 4th quarter of 2013 and then continue to decrease in 2014. If your business is based on short sale transactions you must be doing these two things right now.
1. Increase your marketing efforts and operations in order to fully capitalize on the last 12-14 months of short sale transactions before they begin to decrease.
2. Plan for and begin the execution of your new business plan to engage in traditional real estate transactions with a concentration on obtaining listings (equity sales).
If you’re practicing traditional real estate you will want to begin your focus on obtaining listings (equity sales). This will mean a complete re-tooling of your marketing efforts to obtain listings from prospective clients. Also, this will entail a complete re-tooling of your marketing plan and listings presentation for sellers. In a competitive housing market like we are seeing out west property listings become “gold” and you’ll find yourself competing more with Realtors for this business. A Realtor must become an expert at staging and listing a property effectively for maximizing the value of the property for a higher gain to the client. Your skills and techniques for listings a property in an equity sale will become essential to your bottom line in 2013 and 2014.
Over the course of 2013 I will be traveling the country training Realtors on your Online Marketing Skills & Techniques to help prepare you for prospering in a recovering market. To find our more information on my training programs please contact me directly.
If you have any thoughts on this article please leave a comment below.
George “El Gaupo” Cuevas