October 2008
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 nearly 50% from last year to a level below the demand level in 2003.
Sales Price
The median resale sales price as reported by
ARMLS has continued to drop for the past seven 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 climbed and remained high (4055 – end of November).
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.