February 2007
A BUYER’S
MARKET
The
|
Our definition of a “buyer’s
market” is when an over-supply condition exists, causing supply to have a
greater impact on the market than demand.
The characteristics of a buyer’s market are: -
Inventory level is high - Demand
is not keeping pace with the inventory level -
Time-on-market is increasing or high - Sales
price is decreasing |
Below is
the supply and demand evidence that supports the introductory BUYER’S MARKET
sentence.
Supply
The reality
of today’s market is that supply is at a record level:
Resale listings are at a RECORD level.
New Home specs are at a RECORD level.
Demand
The reality of today’s market is that demand has fallen 40%
from last year to a level below the demand level in 2003.
Time-on-market
The reality of today’s market is that time-on-market is
increasing monthly. Note that as of
October 2006, this measurement has now reached a record high.
Sales Price
The median resale sales price as reported by ARMLS has shown
a slight raise for three of the last five months, but it has declined in the
past two months.
What does
the future hold?
We believe that the pattern which is emerging in the new
home market is an indication of where the real estate market as a whole is
headed.
Existing and Emerging Price Pattern
in the New Home Market
Following are the events which have lead up to the current
New Homes Motivated Seller market (BUYER’S MARKET).
1. Spec inventory level began a
significant acceleration in October 2005 (400+ per month).
2. Spec inventory level reached the
bottom end of the normal range in November 2005 (1752).
3. Spec inventory level reached the
middle of the normal range in December 2005 (2218).
4. Spec inventory level set a new
record in January 2006 (2451).
5. Spec level has continued to grow
(4753 – end of October).
As the spec count began to approach a normal level, builders
began offering small incentives, then came larger
incentives and increased Realtor® commissions.
Over the last few months some incentives has grown to as large as
$89,000. In the last month we have the
seen the beginning of a shift from the open-end incentives to actual price
reduction. Some of these spec price
reductions have been as large as $100,000.
The number of builders making large price reductions seems to be
spreading.
Impact on Resale Market
A logical
progression of these price reduction leads from the new home builders, to
investors holding houses in new home subdivisions, to the investors in resale
homes, and finally to the individual home owner. How large and the exact timing of the impact
on pricing in these market segments is uncertain.
What Can You Do for Your Client in the
Current Market Situation?
We have got
a suggestion on this:
- Use the powerful information in this article, our
newsletter and In-Depth Analysis Newsletter to help them understand the realities of
the current market and the direction in which it is likely headed.