Warning: The Housing Report You Are Receiving Was Done By The Marketing Department

I continue to shake my head in awe at the deceptive housing report that is published each month by the marketing department of the National Association of Realtors.

If you are a long-time reader of the Tallahassee Real Estate Blog, then you know that I report on NAR’s opinion reports each month. They continue to spiral down the path of marketing and promotion, rather than reporting the true state of the real estate market. And their biggest crime is not what they are saying, it is what they are implying.

In its most recent housing report, NAR wrote:

The national median existing-home price for all housing types was $187,300 in July, up 9.4 percent from a year ago. The last time there were five back-to-back monthly price increases from a year earlier was in January to May of 2006. The July gain was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.

Now, does that have you believing that homes are appreciating?

If it were me and I relied upon each NAR housing report, I would think that home values are rising, and that the recovery is well on the way.

Unfortunately, we know better.

Why Does Tallahassee Produce A Different Housing Report

In NARs defense, Tallahassee could be moving contrary to the National market. A housing report that only focuses on Tallahassee could be constrained by events that are not being observed nationally.

After all, there could be low inventory in most real estate markets (though I’m not seeing this being reported in very many locations).

And there could be no foreclosures hiding in the shadow inventory.

And maybe these other markets did not just set a record for the most lis pendens filed in a month.

But since I do not have that information, I will focus on the information that I do have.

The Truth About Home Values In A Realtor Housing Report

NAR is always quick to point out median home price movement when it is on the rise. But does the average (or median) price correlate to real estate appreciation (depreciation)? If the median price is rising, can we also say the values are rising?

No, we cannot. And it is wrong to report average price movements and imply in the message that homes are going up in value again. Because they are not.

My evidence comes from the Tallahassee MLS, and I suspect real estate professionals could find similar housing report results in their own markets. But they will not get this from NAR.

What All Markets Can Learn From The Tallahassee Housing Report

If we look at year to date, arms length home sales in Tallahassee, we find that 2012 has recorded the highest average home size in the past 11 years. This means that people are buying bigger (more house) now than ever before.

Housing Report on home sizes

What NAR fails to reveal in their housing report is that mortgage interest rates are 22% lower this year than they were at the same time last year (based upon Freddie Mac’s report on 30 year fixed rate mortgages).

This additional buying power is allowing people to purchase “more home” for the same monthly mortgage payment, and they are choosing bigger homes.

This is the current dynamic that is allowing the median home price to rise, even as the median home value continues to decline. In fact, home values are 1.33% lower though August than they were last year.

What do you think will happen when mortgage interest rates begin to rise after the election? That will mean buyers will have diminished buying power …

A Call For Accurate Housing Reports

I wish more Realtors would do these types of housing reports. I suspect there are local markets well into recovery, and a housing report from each of them showing price, value, and size would be quite revealing.

Personally, I only look at the raw data in any housing report published by NAR, and I would encourage our readers to take anything opined by NAR with a grain of salt.

Tallahassee Home Prices Are On The Rise Yet Owners Are Losing Equity

Yes, Tallahassee home prices are on the rise, and no there is not a typo in the title of this article.

Many people do not realize that Tallahassee home prices and Tallahassee home values are two very different measurements.

Think of it this way.

When a report references average home prices (lately we have seen number NAR reports saying home prices are on the rise), this is simply a measurement of the average or median home price during a certain period of time.

If ten houses sell for $1.5M, then a report might announce that average Tallahassee home prices are $150K. If next month 10 houses sell for $1.6M, the report could conclude the average price rose $10K in a month.

So average Tallahassee home prices are merely a report of what buyers are spending these days. Due to a better economy or lower interest rates, buyers might be more inclined to “buy up” in the market, and the converse would be true with rising interest rates and a weakening economy.

But do not be confused, prices are not the same as values.

It is highly possible that buyers are willing to spend more, but that does not mean buyers will pay more for a home than they have to, right?

Buyers still want to get the best deal possible when buying a home, so if they have more to spend, won’t they just be buying a nicer home?

The fact that average Tallahassee home prices are on the rise means nothing for home values, because home values are still falling.

We have too many homes on the market. We have too many homes that have left the market as failures (The Forgotten Inventory) and not yet returned. And we have too many homes in distress that have yet to enter the market (Shadow Inventory).

Supply and demand in real estate is the same as supply and demand in every other market. Too much supply or too weak demand equals falling values.

Tallahassee Home Prices Versus Tallahassee Home Values

The real estate graph below plots the one year trend of both Tallahassee home prices (red) and Tallahassee home values (green).

Tallahassee Home Prices And Values Joe Manausa Real Estate 1140 Capital Circle SE #12A Tallahassee, FL 32301 (850) 366-8917 www.manausa.com

We can see that there has been no break in trend of falling home values in Tallahassee, but there have been numerous times when home prices have risen for a period of time.

Understanding Tallahassee Home Prices

If you are thinking about selling a home, you must come to grips with the fact that your home is worth less than it was a year ago. In fact, it is most likely worth the same as it was in 2003.

While this is not easy to stomach, it is still a smart time to sell (IF) you are buying back into the market. Many people who are selling are finding that they can purchase a larger home and keep their mortgage payment around the same number as they are paying in their present home (due to lower interest rates).

If you would like to talk strategy for selling your home and moving to a larger/nicer one, just drop me a note and we can schedule a time to evaluate your options. You just might be pleasantly surprised at what you will find with low Tallahassee home prices.

Real Estate Industry Catch Phrase – The Forgotten Real Estate Inventory

real estate industry catch phrase Joe Manausa Real Estate 1140 Capital Circle SE #12A Tallahassee, FL 32301 (850) 366-8917 www.manausa.comIn case you missed my previous post on The Forgotten Real Estate Inventory from last week, you should know that it might just have identified the newest catch phrase in the real estate industry.

The real estate industry has used the same terminology for years to describe home sales. It is not often that we “learn something new” in an industry that is as old as home sales in Tallahassee and beyond.

Prior to the “Forgotten Real Estate Inventory,” the most recent catch phrase to hit the real estate industry was “Shadow Inventory,” which describes all the homes that are being held back from the market but are either bank-owned assets or owned by people who are seriously delinquent on their mortgage payments.

Another fairly recent “new term” in the real estate industry is “short sale,” which wasn’t something many of us really used until masses of upside-down home sellers started to hit the housing market in 2007.

New Real Estate Industry Catch Phrase

But we needed something to describe all of those homes that were not part of the known inventory, and not part of the shadow inventory, that consisted of recently “failed to sell” homeowners. Last week’s article showed this VERY LARGE group of future inventory is, for the most part, totally unknown by the real estate industry across the country. And why does this matter?

Because we are seeing the known inventory drop, and real estate professionals and builders might begin “licking their chops” for new inventory needs. Should builders begin permitting and expect an expansive 2013? Will the real estate industry see a shortage of supply?

The answer in every market is unique to that market, but not as much as most in the real estate industry would believe. The answer in Tallahassee is an emphatic “No!”

We have a backlog of measurable supply that far exceeds any potential demand for the next three years. Simply put, values will continue to fall for years to come until we exhaust the known supply of homes, the shadow inventory of homes, and the forgotten real estate inventory.

Real Estate Industry Must Understand Market Information

Last week’s article generated a lot of discussion from readers, and specifically real estate industry folks from around the country. Many chimed in with some great insight, but it was disturbing to see how many people chimed in with thoughts that demonstrated their total ignorance of their local market situation.

It is readily apparent that most people in the real estate industry do not measure what is happening, and because of this they have skewed views of what is going to happen in their local markets. Even after the incredible collapse of the housing market, there are still those that will stand up and say “not in my market.”

To that I say “Prove It.”

Don’t be so quick to point out how your area is different. Do some work and prove it.

Try doing what I have done. It takes a lot of work, but my customers deserve the best information that they can get, because the decisions they are making to sell a home in Tallahassee now, or buy one now, is one of the more important decisions they will make in their lives.

No longer should people rely on a nice family member who works in the real estate industry. Bad advice, even from loved ones, is still bad advice.

Find the professional in your local real estate industry who measures market activity and who can give you the tough advice that you need. You will save a lot of money when you know what few of your competitors know (other people selling a home or buying one in the market in which you live.).

If you want to know the top agent in your local real estate industry, just drop me a note and I will put you in the safe hands of somebody who truly measures and knows the housing market.

Do You Remember The Forgotten Real Estate Inventory?

Forgotten Real Estate InventoryEvery market is joyfully reporting a reduction in the number of homes for sale in the Realtor MLS system, but I have not seen anybody addressing the forgotten real estate inventory.

I am concerned that we are experiencing a different phenomenon all together.

I suspect everybody has a decent understanding of supply and demand in real estate, and that we use routine measurements of both demand and supply to determine the health of the housing market.

For most US housing markets, the supply of homes is measured purely based upon the number of homes listed in the local Realtor MLS system.

Would you be surprised/shocked to discover that the homes listed for sale in the MLS only represents about 20% of the real inventory of homes that need to be sold?

Long time readers of the Tallahassee Real Estate Blog know that an additional “Shadow Inventory Of Homes” exists, which is comprised of all those unlisted bank holdings and currently unlisted delinquent home owners.

But what about that large group of homes (even larger than those currently listed for sale in the Tallahassee MLS) that tried to sell in recent years and failed?

Measuring The Forgotten Real Estate Inventory

You might never have thought about it, but there have been a lot of homes that failed to sell during the housing correction, and those that remain unlisted and unsold are a group that I call the Forgotten Real Estate Inventory.

It is the growing group of homeowners who have given up hope of selling their home, but they still want to move.

Many of the homes that failed to sell simply re-entered the MLS after failing (sometimes more than once) and eventually sold, but you might be surprised at the number of failures that still remain in the forgotten real estate inventory.

The Forgotten Real Estate Inventory

Forgotten Real Estate Inventory Still Growing

This is not a problem that is going away in the next year or so.

The first graph shows that there are more than 2 years of supply in the current count of the forgotten real estate inventory, and it is growing.

The real estate graph above shows that the Forgotten Real Estate Inventory is growing by more than 3 homes per day (Roughly 1,150 per year), which is about 6 months of supply.

When you put the forgotten real estate inventory together with the shadow inventory and the Realtor MLS inventory, there is five years of supply of homes for sale in Tallahassee.

I suspect most other markets would find similar numbers if anybody there was really measuring.

So I am excited to see the MLS supply of homes falling, but I am going to withhold my celebration until I see how the shadow inventory and the forgotten real estate inventory work themselves out.

Real Estate Forecast 2012

Real Estate Forecast Crystal BallDecember 12, 2011 – Every year around this time, I put together a real estate forecast and try to explain my expectations for the coming year. I am proud to say that I have been fairly accurate in my projections, and often times hit the nail on the head while many others in the Tallahassee housing market were calling for something entirely different.

Long-time readers of the Tallahassee Real Estate Blog will recall that my real estate forecast called for falling home values and the potential for “worst year ever” for the total number of closed home sales. Currently, home values have fallen around 7% and our pace of home sales appears to be hitting the mark for the worst year ever.

Reminder: The Tallahassee Ballet with perform its 26th annual production of The Nutcracker accompanied by the Tallahassee Ballet Symphony on December 17 and 18 at Ruby Diamond Auditorium. Get your tickets here. Enjoy this magical performance with family and friends this holiday season

But as 2011 is drawing to an end, I am ready to evaluate the current state of the Tallahassee housing market and to identify the signs that will provide guidance for Tallahassee homeowners who might want to sell a home in 2012. These are the focal points of my real estate forecast for 2012:

  • Real Estate Supply And Demand In Tallahassee
  • Shadow Inventory Of Homes In Tallahassee
  • Current Issues Affecting Demand For Tallahassee Homes
  • Tallahassee Population Growth Trends
  • My Forecast For 2012 And Beyond

Real Estate Supply And Demand In Tallahassee

The most important factor involved in developing an accurate real estate forecast for 2012 is having a solid understanding of the current real estate supply and demand dynamic in Tallahassee. Right now, things appear to be getting better on the supply side, as both the real supply and relative supply of homes for sale in Tallahassee are on the decline.

Supply And Demand For Real Estate Forecast Tallahassee

In the real estate graph above, the green triangles measure the number of closed home sales each month, while the red squares show the real supply of homes for sale in the Tallahassee MLS. The blue columns are the resulting measurement of relative supply (months of supply of homes measured at the current rate of demand). Both the real supply and relative supply have fallen, but they are still significantly higher than the market needs to see value trends flatten or reverse direction, thus 2012 will bring continued pricing pressure and declines in home values in Tallahassee.

Shadow Inventory Of Homes In Tallahassee

The shadow inventory of homes in Tallahassee is a major contributor to the present and future inventory of homes that will soon be available in the market. By definition, the shadow inventory is all those homes that need to be sold, but are not currently in the MLS (known inventory). Most national real estate reports include bank foreclosures and pre-foreclosures that are not currently listed for sale, but I like to add another category (homes that recently failed to sell but are not currently in the MLS). Once cannot produce an accurate real estate forecast without estimating the size of the shadow inventory of homes.

The size of our shadow inventory is at least two years worth of supply, and most likely closer to four or more. It all will depend on the future rate of demand. When we look at the data on mortgage delinquencies (specifically the 90+ days late category), Leon County rose +.9% from 2nd Quarter 2011 to 3rd Quarter 2011. This means that the number of people who are late 90 days or more on their mortgage is higher now than it was in June, which mirrors the changes occurring at the national level.

We can conclude that there has been little or no reduction in the shadow inventory due to short sales and foreclosure sales, as mortgage delinquencies have actually risen over the past five years. Additionally, home values have declined for over 5 years now, meaning more and more people are unable to sell their home without bringing money to closing. As time moves on, the pent-up supply of homes that need to sell could very easily explode onto the market.

Mortgage Delinquencies Assist 2012 Real Estate Forecast Tallahassee Florida

Just as mortgage delinquencies are adding to the shadow inventory of homes, so too are the homes that have recently come off the market, having failed to sell. Currently, less than one half of the homes that hit the market in the past 365 actually sold, thus there is an abundance of homes that failed to sell over the past several years. Currently, more than 3 homes per day are joining the shadow inventory from this failed to sell group. It is important to note that this specifically measures homes that failed and did not re-enter the market, because we also track those that failed to sell and then re-entered the market.

Homes That Failed To Sell Are Part Of Real Estate Forecast 2012

The graph above shows that the current rate of homes failing to sell (and not re-entering the market) has risen 78% since the same time last year. This could very well be a sign of many seller’s “giving up” for now, and it most certainly is the primary reason why our real supply of homes has fallen. While our data is for the Tallahassee housing market only, you can be certain that this is happening in many other markets around the State and around the US, where shallowly-researched real estate forecasts are trumpeting the fall in real estate supply.

Current Issues Affecting Demand For Tallahassee Homes

While the supply side of the formula threatens to be burdensome for years to come, there are many reasons to believe the demand side will be finally gearing up to return to levels we normally see in the Tallahassee real estate market. Interest rates are at historic lows, meaning that buyers who are using credit to purchase their homes will have lower payments or more purchasing power than at any time in recent years. But as enticing as low interest rates are for homebuyers, they will have little impact on this real estate forecast.

The real problem that most US housing markets have to overcome is the bulk of homebuyers who first have a home to sell. These are people who want to move (think of this as pent-up demand), but cannot sell their home and get the equity needed to buy a new one. In fact, many of these prospective buyer/seller types are upside-down in their homes and could only sell through a short-sale. If they do consummate a short sale, they will not be able to get a federally-backed home loan for the next two years.

As home values continue to decline, more and more homeowners are finding themselves in this position. As I write this real estate forecast, home values are similar to levels last seen in 2003, and they are still falling. The depreciation of home values has stymied the market, and it is going to take something beyond affordability and low interest rates to get this market moving again.

I believe that we will eventually see a “short sale amnesty” program launched that will allow home sellers (who remain current on mortgage payments) to do a short sale and then immediately qualify for a new government backed mortgage. This will eliminate the 2-year wait that is holding these sellers back right now and could easily be the needed priming for the pump. Remember, more than half of all homebuyers in Tallahassee traditionally have a home to sell first, so we know that fewer and fewer of them are capable of moving right now, even though they would like to move. An amnesty program for credit-worthy home sellers could turn demand around in a hurry, though I see no signs of this occurring in 2012.

Population Growth Trends

A positive change in our local population growth rate could be the silver bullet that helps put the real estate recovery into full gear. We can use information from the US Census Bureau to determine how our historic rate of growth has contributed to the sale of homes in Tallahassee.

The Census reported that Leon County averages 2.29 people per household, and it also reported population levels every ten years going back to 1840. By combining these with mortality rates and other statistics that we track, I have assembled a model that will allow a real estate forecast for the expected path of home sales in Tallahassee over time.

Forecasting Model Using Population Changes

First of all, there is no census data for years between each decade, but several different sources place an estimate on current population levels, based upon economic activities in the area. I read a few reports that estimated our population growth had stopped (receded by less than 1%) in 2010 (when compared to 2009), so I have applied that to our known population figures from the US Census Bureau.

Another thing to consider is that population growth is really the net change from people moving to Tallahassee, less people moving away from Tallahassee. This is important to know, because even if there is net zero growth, there will still be an impact on home sales (but no growth will be needed in new construction). Additionally, the census reports that an average of 2.29 people live in each household in Leon County, so we can estimate the impact of population growth on housing demand with a simple formula.

In this first population graph, I show historic population changes with anticipated future population changes, and its impact on home sales in a real estate forecast. For future years (below the question mark in the graph), I used the same growth rate that was recorded from 2000 to 2010.

Tallahassee Population Change Is Basis For 2012 Real Estate Forecast

Real Estate Forecast For 2012 And Beyond

Obviously, there was a small leap taken by me at assuming zero growth for three years, then renewing at the pace we saw over the past 10 years. I am sure we could argue that growth will be faster (or slower) due to a myriad of reasons, but I feel for the sake of creating a conservative real estate forecast, this was most-expected-case based upon the information available when I wrote this article.

The previous graph showed the relationship between population growth and home sales. But to do a full real estate forecast, we need to look at not only sales due to population growth, but also sales due to mortality, and of course home sales unrelated to population changes.

This next graph combines all three. The yellow area shows the home sales not due to population change, and I project them recovering in 2013. This is most likely optimistic and will require some way to get short sales moving faster. But it also considers that many people have consummated short sales over the past few years and will soon be qualified to take advantage of great mortgage interest rates by the end of 2012 and then all through 2013.

Home Sales And Population Growth Trends Form Real Estate Forecast 2012

I am expecting another year of very low sales in the Tallahassee housing market. The biggest variables for next year (meaning what can make this real estate forecast terribly wrong) are population growth and home seller initiatives (like a short sale amnesty program). Assuming zero growth in population and the status quo on short sales, Tallahassee will record 3,200 home sales in 2012, which would only be marginally better than the past two years. As stated earlier, home values will continue to depreciate (look for another 4 to 8 percent reduction).

Beyond 2012 Real Estate Forecast

I will take a leap of optimism in my closing remarks to predict that a pseudo solution for home sellers will be available by 2013, as will the restoration of Tallahassee’s traditional, steady population growth rate. The combination of these two factors will make it easy to see home sales double in 2013 and return to levels that are consistent with what happened in the past, prior to the housing market boom.

Should my real estate forecast for 2013 be mostly right, we could expect to see excess home inventories consumed by the end of 2015 and home values could finally begin to stabilize. This means that my OPTIMISTIC outlook for home value stabilization is for 2015 or beyond.

Please keep in mind this is as optimistic as I feel comfortable in forecasting, and government intervention and bank stalling could very easily make for a longer recovery beyond the 2012 real estate forecast.

Real Estate Inventory Falls Again In October

Once again, the supply of homes for sale in Tallahassee has fallen, even as home sales remain at historical lows. We published the November Housing Report this morning and it provides clear market feedback that is more a sign of pent-up supply than an actual report of falling real estate inventory.

In order to see a real reduction in the real estate inventory in Tallahassee, we need to see monthly sales begin to head back to historical norms. We know that there was more than a year’s supply of homes in the shadow inventory last time we made an approximation, and low sales levels mean that number is not dropping very fast, if at all.

We have been advising homeowners who want to sell their home to make a choice between selling right away, or waiting 5 or more years for the market to return to levels exceeding today’s values. This advice is not changing, as home values are still declining and people who sell now will most likely yield more than those who wait until next year to sell a home.

Tallahassee Real Estate Inventory

The real estate inventory graph below shows the total supply of single family homes, condominium units, and townhouses (red boxes), monthly sales (green triangles), and the corresponding relative supply of homes for sale in Tallahassee (blue columns) going back to the beginning of 2008.

Real Estate Inventory Tallahassee Florida

The good news from this graph is that relative supply is at its lowest levels since before August 2008, but the bad news is that the relative supply of homes for sale in Tallahassee is still nearly double the level required to reach market equilibrium. Had we not been monitoring the homes that failed to sell and the shadow inventory of homes, we could mistakenly believe that a quick increase in demand would restore the market immediately.

The reality however, suggests that as soon as demand begins to grow in the market, the supply side will start rushing back into the market. This is important to understand if you are a homeowner hoping to wait it out just a little while longer, because there are too many prospective home sellers in this very same situation. We will continue to see competition for limited buyers and thus, falling home prices. If you know you need to sell a home, sell it now, sell it fast, and get top dollar before the market continues down to lower home values.

Real Estate Shadow Inventory Is Shrinking

Real Estate Shadow InventoryMy REALTOR® friend Barry Rose read yesterday’s article in REALTOR® Magazine about the real estate shadow inventory and wondered what I thought. The number of homes in the shadows, as measured by CoreLogic, is falling. They basically calculated the number of new foreclosure sales and compared it with new lis pendens filings to see that the rate of sales was higher than the rate of new filings. But I think we should take a broader look.

First of all, the term “real estate shadow inventory” is generally used to define the group of homes in distress that are not currently on the market. The term was coined to acknowledge that homes for sale in the MLS are not the entire supply side of the housing market. There is a group of homes that cannot be exactly measured, but are known to be “needing to be sold,” and thus the term “shadow inventory” became popular to describe these homes.

I think the term “real estate shadow inventory” should be standardized by our industry and used when discussing ALL of the homes that need to be sold, but which are not yet on the market. These homes are “hidden in the shadows.”

Long-term readers of the Tallahassee Real Estate Blog can remember me writing about this several times in the past, and if you want to get up to speed on the real estate shadow inventory in Tallahassee, just follow this google search for a list of quite a few articles on the housing shadow inventory in Tallahassee.

Reduction Of Real Estate Shadow Inventory

The real estate shadow inventory in Tallahassee appears to be mirroring the findings from CoreLogic, though our shadow inventory has only fallen 16% (compared to the national figure of 22% found by CoreLogic).

Homes In The Real Estate Shadow Inventory

This graph shows Tallahassee currently has a minimum of 5 months worth of supply in the real estate shadow inventory. Unfortunately, this is compounded with the same amount or more in recently failed home sellers, plus the 11+ months of supply of homes for sale in the Tallahassee MLS, it is safe to say that we have more than 2 years worth of supply of homes. This is bad news for home builders (and our local economy) as we will not be needing to build any new homes for several more years.

Tracking The Real Estate Shadow Inventory

The following graph shows a picture of the data I used to determine the current state of the real estate shadow inventory in Tallahassee. It is important to note that this information is very accurate, though it does not include any homes that entered the shadow inventory prior to 2008 (meaning our shadow inventory of homes is most likely a little larger than my findings show). For the purposes of our analysis though, it paints a very clear image.

Real Estate Shadow Inventory Growth

The graph above shows the “hidden math” behind how CoreLogic and my results were found. The blue bar measures the total number of new foreclosure filings each year (lis pendens filings), the red bar measures the number of transfers from individuals to lenders (foreclosures and deed-in-lieus), the green bar measures the number of foreclosure sales (lender to individuals), while the purple bar measures the number of individual to individual sales (pre-foreclosures and short sales). Finally, the black bar shows the impact on the number of homes in the real estate shadow inventory.

I agree with REALTOR® Magazine and CoreLogic, this is indeed good news. But as CoreLogic concluded in its report, there are a lot of bogeys out there still to be encountered. Property values are falling, thus homeowner equity is falling. This means a higher difficulty in selling homes, and home sellers make up more than 1/2 of the buyer pool, so it is a self-fulfilling problem in that our buyer pool continues to shrink while the potential for distressed home sellers grows. This problem is not going away in 2012!

If REALTOR® magazine would address the issue of failed home sellers, I suspect we might even be able to get NAR off of the “things are wonderful” reporting track. And if our industry leaders would paint a more accurate picture, we most likely would see better decision making by the banks (read that as they would accelerate the process for short sales) and better support from our political “leaders.” The issue of the real estate shadow inventory will be with us for several more years, and the market would be best served by decisive actions by those that control the banks and our government (soon to be one in the same?).

Waiting To Sell Your Home? You Are Not Alone

Waiting For A Home To Sell ImageThere is a rather large group of people who are waiting to sell their home, hoping that the housing market and the economy turn around and start to improve. This might be a very wise strategy if it is what you are currently doing, but only if you are planning on waiting five or more years.

There is a growing list of homes that are not on the market but that do need to be sold, and we refer to that list as the shadow inventory of homes. We have estimated that its size is somewhere near the level of 5 years worth of supply, so it is not going away any time soon. It includes home sellers who are waiting on the market to change, but it also includes the scores of pre-foreclosures, foreclosures, and REO properties that have yet to hit the market. The situation is a mess and homeowners need to review their options.

Home Sellers Playing The Waiting Game

As we continue to monitor the supply of homes for sale in Tallahassee, one graph that has become suddenly valuable is our analysis of home sellers who decided to “wait until next year” when they wanted to sell their home. It is not a new phenomenon that some home sellers want more for their home than it is worth (:)), and it shows the impact of their decisions over the past 21 years.

Waiting To Sell Your Home Image

This graph shows whether or not a homeowner was successful at waiting an additional year before deciding to sell a home. If the graph shows a “yes,” as it does for 13 of the first 14 years, then home values appreciated and it is likely that the seller yielded more money than had they sold it the previous year. But if the graph shows a “no,” as we have seen for the past four years, then the market saw values drop and it is likely that the seller missed a better time to sell a home.

Due to the glut of supply, as well as the tremendous pile-up occurring in the shadow inventory of homes, it is likely that this graph will produce a “no” for at least 3 more years, but a realistic expectation would be more like 7 or 8 years (see article on returning to real estate market equilibrium from last week).

If you have a home that you would like to sell, but you do not know what to do, here is what I recommend. Sit down with an expert in your housing market (not just a friend in real estate) and discuss your options. Find out the estimated value of your home and what it would mean if you sold the home. Make an informed decision and then move on with your life knowing you’ve done the best that you can. There are some surprising solutions you might have considered yet, so talk to a professional to see what can be done for you.

Housing Market Equilibrium In 2018: Case Study Details Why

Housing Market Equilibrium ImagePreliminary data on Tallahassee population is starting to trickle in from the 2010 Census, and growth appears to be the continuing trend which is good news for those of us seeking a housing market equilibrium.

The real estate market greatly needs a growing population to consume the glut of homes for sale in Tallahassee. Even though there will be more data provided by the US Census in the months to come, we now have enough for an accurate case study on housing market equilibrium.

By the end of this post, you will completely understand why we have 7 more years to go!

Tallahassee Population Grows By 1.41% Per Year

For long-term readers of the Tallahassee Real Estate Blog, you might notice that I often use “Tallahassee” and “Leon County” in this Housing Market Equilibrium Case Study interchangeably. When I report on the Tallahassee housing market, I’m including all home sales in Leon County.

However, the Census breaks-down the difference between Tallahassee and Leon County, so I have included a pie-chart to show how the Tallahassee population (and Leon County population) as of the 2010 US Census.

For our new out-of-town readers, we have often demonstrated that Tallahassee is a near-perfect microcosm of the US housing market, thus I would not be surprised if the results of our housing market equilibrium analysis are similar to what you should expect in your area.

Tallahassee Leon County Population For Housing Market Equilibrium

This US Census reports that the population in Leon County grew 15% from 2000 to 2010, which is an annual rate of 1.41%. The population in Tallahassee grew to 181,376, while the population in Leon County (outside of Tallahassee) grew to 94,111, bringing the total population of the county to 275,487. For the Tallahassee to reach a housing market equilibrium, we need this population growth!

Rate Of Population Growth In Tallahassee Declines

It is really good news for Tallahassee that our population is growing, as we need more people to move here and help consume the additional homes that were built during the boom of the housing market. Unfortunately,  our rate of population growth continues to decline. Using Tallahassee population data going back to 1840, I have created a population growth rate graph to show how fast Tallahassee (Leon County) has been growing.

Tallahassee Leon County Population Growth Rate Matters For Housing Market Equilibrium

This population growth rate graph shows four different measurements of our population growth rate, from a 10 year trend all the way out to a 70 year trend. All four are currently declining, and they show rates from 1.4% to 2.4%. Simply put, this means that we have averaged a 1.4% annual growth rate looking back ten years, but looking back 70 years, our growth rate has been higher at 2.4%. We can use this information to make our assumptions when looking forward to forecast the return to a housing market equilibrium.

Using Population Change Trends To Forecast Housing Market Equilibrium

Suppose we were to take what we know (Census data + housing data) and then apply what we’ve measured (growth trends and inventory trends) in order to forecast a likely future for the Tallahassee housing market? That is what I have attempted to do. First, by using the US Census Bureau’s measurement of the population in Leon County over the past 170 years, we can apply current trends to come up with a range of forecasts.

Tallahassee Population Growth Forecast Housing Market Equilibrium

Our graph shows four different forecasts, from the most conservative (using the current trend of population growth) to the most liberal (using the average rate of growth over the past 70 years). The most realistic one to use for our long-term perspective is the 50 year population growth trend (shown in purple on the graph). It projects the population of Tallahassee (Leon County) to be nearly 500,000 people by the year 2040. But for the sake of producing a conservative estimate for the return of housing market equilibrium, our forecast will utilize the lowest of the measurements.

Current Housing Inventory In Tallahassee

Our long-term readers know that we vigorously track the inventory of homes for sale in Tallahassee on our various websites. Without going in to a detailed review, my rough estimate of the current housing glut is this:

Category Units
Homes For Sale In Tallahassee 2,450
Shadow Inventory Of Homes 5,000
Homes That Failed To Sell Since 2007 6,500
Excess Supply Of Rental Units 800
Total Gross Supply Of Homes 14,750

Population Growth: Housing Consumption Analysis

In order to have a fairly accurate view of our housing market situation, we have to trim some of the supply identified above. First of all, not all homeowners who failed to sell (and have not since re-listed or sold the property) will be moving away from Tallahassee. In fact, we can estimate that 80% of these people will stay in Tallahassee, and thus purchase or lease (consume) another home here. Therefore, the 6,500 homes listed in this category can be reduced to 1,300. Additionally, our current supply of homes for sale in the Tallahassee MLS is fairly normal, so we can remove those from our count as well (we always expect to have an inventory of homes for sale on the market). Therefore, the final tally on the “glut” that we are hoping population growth will consume is about 7,100 homes.

The latest information from the US Census tells us that our housing density is 2.34 people per housing unit, so we will need to grow by 16,614 people before we have a “normal” inventory of homes for sale in Tallahassee. This would be our point of market equilibrium and at this level we would expect to see homes appreciate at their “normal” rate of about 3% to 4% per year. But wait, there is one more variable to consider …

The new construction in Tallahassee of housing units will add to the supply, even if the homes are custom built for land owners or if one of our universities decides to add a dorm. This variable is an “unknown,” but for simplicity purposes, let us suspect to add about 800 units per year until we hit equilibrium. Thus, our final formula for projecting equilibrium in the housing market is 16,614 new people plus (800 units x 2.34 people per unit, per year). It might sound a bit confusing, so why don’t we just have a look at it in a graph.

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Restoring Housing Market Equilibrium

The following graph is my best forecast for the Tallahassee housing market to return to equilibrium by the year 2018. There are many variables that can change the forecast, for better and for worse, but based upon current information, this seems to be realistic. Of primary concern on variable includes first and foremost, our reliance on population growth. Nevertheless, I used the lowest projection for population growth, and I used a conservative figure for new construction starts, so I believe the forecast to be as accurate as can be produced at this time.

Housing Market Equilibrium Projection Graph Image

In the graph above, the blue line represents expected population growth, while the red line is the reduction of population gains due to people moving into homes that currently do not exist. The resulting green line is the net gain of people who need to move into a Tallahassee housing unit. The purple line shows the count of homes being reduced from the glut each year, while the black area represents the totality of the glut of homes for sale in Tallahassee. Based upon this projection, the market should hit equilibrium in the first quarter of 2018.

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Southwood Subdivision Home Sales Report

As one of the most active neighborhoods in Tallahassee, the Southwood Subdivision is important to monitor even if you do not live there. We always have to remember that the overall state of the Tallahassee housing market is influenced by all the homes for sale in our area.

Currently, there are 59 homes for sale in Southwood (listed in the Tallahassee MLS) and 9 of them are new construction and surprisingly “only” 20% of the homes listed are distressed properties. With all the lis pendens filed in Tallahassee in 2010, we are expecting significantly more than 20% of of our sales to be distressed properties.

Homes For Sale In Southwood Tallahassee Image

Often times, readers are curious why I list relocation among the distressed properties. This is something that I started doing a few years ago when it became apparent that lenders were going to become very active in the disposition of real estate. As more of inventory of homes for sale are institutional in nature, we can certainly view homes with relocation contracts in a similar light as REO properties held by lenders.

Home Values Stabilizing In Southwood

As more distressed properties are entering the market, it is getting more difficult to produce historic trend reports without including a mile of caveats at the bottom of each graph. When trying to ascertain value trends (are home prices rising or falling?) in Southwood, we normally do not include sales that are not arms length, and the following real estate graph is the output that we receive.

Southwood Home Values Image

Questions About Homes Sales In Southwood

The graph above does not include new construction sales, foreclosure sales, short sales, pre-foreclosure sales, nor reo property sales. Additionally, I am concerned about the growing supply of homes in Southwood that were recently offered for sale and failed, but have not yet been relisted for sale. What are recently failed home sellers in Southwood choosing to do? Can we expect a deluge of properties to hit the market in Southwood? If the market does not recover as fast as they would like, will Southwood see a run of strategic defaults?

I’m not picking on Southwood, I just don’t have the time to analyze every neighborhood in Tallahassee, so I focus on the larger ones. Southwood has been very active with new construction in a market that is reeking of over-supply, so you can bet I will keep this Southeast Tallahassee neighborhood on my current and future watch lists.

Arms Length Home Sales In Southwood

Southwood Address Price Home Size Home Value Age Sale Date
3243 APPLETON DR 470,000 2952 $159 2004 1/11/2011
3312 CALUMET DR 145,000 1394 $104 2006 1/5/2011
3242 BELLE MEADE TRL 380,000 2816 $135 2006 12/30/2010
2570 TWAIN DR 321,000 2847 $113 2007 12/22/2010
4121 FITZGERALD RD 242,300 2275 $107 2006 12/20/2010
3250 CAROLLTON DR 215,000 1782 $121 2004 12/17/2010
3254 CAROLLTON DR 215,000 1882 $114 2003 12/10/2010
4307 FOUR OAKS BLVD 154,900 1744 $89 2004 12/1/2010
3153 BUCKHEAD TRCE 222,500 2035 $109 2001 11/29/2010
3606 BILTMORE AVE 178,000 1633 $109 2006 11/19/2010
3165 BUCKHEAD TRCE 229,000 2045 $112 2002 10/28/2010
3794 PINEY GROVE DR 550,000 3234 $170 2003 10/28/2010
3590 FOUR OAKS BLVD 149,000 1394 $107 2005 10/27/2010
4052 SHADY VIEW LN 245,000 2035 $120 2004 10/26/2010
2123 SUNLIGHT TER 283,000 3214 $88 2004 10/22/2010
4063 COLLETON CT 139,000 1483 $94 2003 10/12/2010
4066 FOUR OAKS BLVD $126,000 1,521 $83 2007 9/29/2010
4043 SWIFT WAY $172,000 1,474 $117 2004 9/21/2010
3993 FOUR OAKS BLVD $130,000 1,324 $98 2001 9/20/2010
4229 SUMMERTREE DR $335,000 2,486 $135 2006 9/16/2010
2416 RAIN LILY WAY $199,000 1,393 $143 2009 9/10/2010
3187 DUNBAR LN $690,000 3,984 $173 2008 9/10/2010
3093 MERCHANTS ROW BLVD $141,500 1,521 $93 2007 9/9/2010
3771 LONGFELLOW RD $344,000 2,629 $131 2005 9/7/2010
4112 BILTMORE AVE $315,000 2,368 $133 2005 9/3/2010
2108 NEW DAWN RD $215,000 2,219 $97 2003 8/26/2010
4108 BILTMORE AVE $297,500 2,250 $132 2004 8/20/2010
3249 CAROLLTON DR $390,000 2,815 $139 2006 8/13/2010
4257 SUMMERTREE DR $301,000 2,227 $135 2006 8/13/2010
3158 CONE FLOWER DR $207,000 1,400 $148 2009 8/12/2010
3809 PINEY GROVE DR $283,000 2,250 $126 2003 8/6/2010
4640 GROVE PARK DR $625,000 3,378 $185 2004 7/30/2010
4226 AVON PARK CIR $140,000 1,324 $106 2005 7/26/2010
3682 MOSSY CREEK LN $785,000 5,064 $155 2005 7/22/2010
3793 CHANTICLEER CT $495,000 3,282 $151 2005 7/20/2010
3640 MOSSY CREEK LN $780,000 5,091 $153 2005 7/19/2010
4028 SHADY VIEW LN $235,000 1,953 $120 2004 7/1/2010
3258 SALINGER WAY $300,000 2,237 $134 2005 6/30/2010
3780 IVY GREEN TRL $234,500 1,683 $139 2002 6/30/2010
4122 FITZGERALD RD $318,000 2,690 $118 2006 6/30/2010
3299 SALINGER WAY $275,000 2,264 $121 2005 6/18/2010
3139 MULBERRY PARK BLVD $155,000 1,744 $89 2002 6/17/2010
3712 RIVERTON TRL $275,000 2,812 $98 2006 6/4/2010
2468 LANTANA LN $275,000 2,284 $120 2008 5/28/2010
3620 BILTMORE AVE $180,000 1,394 $129 2006 5/28/2010
4342 GROVE PARK DR $255,000 1,962 $130 2005 5/28/2010
3262 BELL MEADE TRL $450,000 3,279 $137 2006 5/27/2010
3775 LONGFELLOW RD $305,000 2,220 $137 2004 5/25/2010
3252 THOREAU AVE $360,000 2,582 $139 2007 5/19/2010
3632 BILTMORE AVE $222,000 1,835 $121 2006 5/18/2010
3252 THOREAU AVE $285,000 2,582 $110 2007 5/14/2010
3629 LONGFELLOW RD $188,500 1,695 $111 2006 5/7/2010
4051 SWIFT WAY $199,900 1,394 $143 2005 5/7/2010
4536 GROVE PARK DR $695,000 3,571 $195 2006 5/4/2010
3631 MOSSY CREEK LN $685,000 3,347 $205 2004 4/28/2010
3629 LONGFELLOW RD $166,000 1,695 $98 2006 4/26/2010
3173 MULBERRY PARK BLVD $133,000 1,324 $100 2002 4/15/2010
3972 GROVE PARK DR $149,000 1,324 $113 2002 4/8/2010
3080 INDIAN GRASS LN $205,000 1,393 $147 4/2/2010
3760 OVERLOOK DR $300,000 2,222 $135 2003 3/19/2010
3134 BARINGER HILL DR $551,200 4,286 $129 2003 3/8/2010
3757 ESPLANADE WAY $192,500 1,620 $119 2003 3/3/2010
3245 THOREAU AVE $300,000 2,374 $126 2006 2/23/2010
4031 SWIFT WAY $218,500 1,777 $123 2005 2/23/2010
3731 FOUR OAKS BLVD $255,000 1,896 $134 2001 2/19/2010
3245 DUNLEITH LN $265,000 2,156 $123 2004 2/4/2010
4240 RALEIGH WAY $227,500 1,632 $139 2006 12/30/2009
3163 ANDELUSIA AVE $310,000 2,228 $139 2002 12/29/2009
4024 SHADY VIEW LN $240,000 2,185 $110 2004 12/24/2009
3226 SALINGER WAY $310,000 2,335 $133 2005 12/21/2009
3797 PINEY GROVE DR $252,500 2,223 $114 2003 12/17/2009
3792 WENTWORTH WAY $336,100 2,330 $144 2005 12/9/2009
2995 VERDURA POINT DR $264,600 2,292 $115 2005 12/7/2009
4103 KIPLING CT $302,500 2,368 $128 2006 11/25/2009
2128 DRAYTON DR $361,000 2,529 $143 2003 11/23/2009
3677 ESPLANADE WAY $236,000 1,940 $122 2003 11/20/2009
4107 KIPLING CT $300,000 2,368 $127 2006 11/18/2009
4073 COLLETON CT $142,500 1,483 $96 2003 11/16/2009
3728 IVY GREEN TRL $235,000 1,620 $145 2001 11/12/2009
3151 MULBERRY PARK BLVD $159,000 1,324 $120 2002 11/6/2009
4086 FOUR OAKS BLVD $200,000 1,818 $110 2007 11/6/2009
3746 LONGFELLOW RD $465,000 3,870 $120 2006 10/30/2009
2542 TWAIN DR $420,000 2,586 $162 2006 10/28/2009
3976 SHUMARD OAK BLVD $159,200 1,324 $120 2005 10/26/2009
3693 ESPLANADE WAY $242,000 2,012 $120 2003 10/15/2009
4251 RALEIGH WAY $204,900 1,626 $126 2006 10/15/2009
3745 OVERLOOK DR $325,000 2,320 $140 2003 10/8/2009
3250 CAROLLTON DR $256,000 1,782 $144 2004 10/7/2009
4089 COLLETON CT $215,000 1,966 $109 2003 9/29/2009
3647 MOSSY CREEK LN $684,000 4,354 $157 2003 9/28/2009
3093 MERCHANTS ROW BLVD $155,000 1,521 $102 2007 9/25/2009
3610 LONGFELLOW RD $325,000 2,714 $120 2006 9/25/2009
2131 SUNLIGHT TER $260,000 2,030 $128 2005 9/23/2009
4018 BLAIRSTONE RD $175,000 1,394 $126 2005 9/15/2009
3679 ESPLANADE WAY $224,000 1,782 $126 2003 9/14/2009
3722 LONGFELLOW RD $350,000 2,225 $157 2003 9/14/2009
3622 BILTMORE AVE $194,000 1,394 $139 2006 9/11/2009
3232 WHITMAN WAY $305,000 2,707 $113 2006 9/10/2009
2107 MERRIFIELD LN $225,000 1,620 $139 2003 9/8/2009
4117 FITZGERALD RD $302,000 2,357 $128 2006 9/4/2009
3745 FOUR OAKS BLVD $253,000 2,021 $125 2001 9/3/2009
3258 THOREAU AVE $325,000 2,027 $160 2006 9/1/2009
4235 RALEIGH WAY $183,000 1,394 $131 2006 8/28/2009
4560 GROVE PARK DR $550,000 3,819 $144 2006 8/28/2009
3158 BARINGER HILL DR $375,000 2,794 $134 2002 8/26/2009
3653 ESPLANADE WAY $217,500 1,940 $112 2003 8/21/2009
3757 FOUR OAKS BLVD $255,000 2,045 $125 2002 8/17/2009
3254 NEWBERRY BLVD $194,000 1,401 $138 2004 8/14/2009
4042 BLAIRSTONE RD $190,000 1,644 $116 2005 8/6/2009
3214 YEATS AVE $255,500 2,021 $126 2005 7/31/2009
4106 FOUR OAKS BLVD $165,000 1,521 $108 2007 7/31/2009
4298 PARK CROSSING TRL $159,000 1,324 $120 2005 7/24/2009
4338 GROVE PARK DR $255,000 1,962 $130 2005 7/24/2009
3153 BARINGER HILL DR $365,000 3,016 $121 2002 7/22/2009
3614 LONGFELLOW RD $269,900 1,650 $164 2006 7/15/2009
3805 PINEY GROVE DR $265,000 2,368 $112 2003 7/10/2009
3245 DUNLEITH LN $256,000 2,156 $119 2004 6/30/2009
4286 PARK CROSSING TRL $190,000 1,966 $97 2005 6/19/2009
3157 BUCKHEAD TRCE $245,000 1,953 $125 2002 6/15/2009
2452 RAIN LILY WAY $245,000 1,656 $148 6/12/2009
3785 LONGFELLOW RD $320,500 3,385 $95 2007 6/11/2009
3245 DUNLEITH LN $252,200 2,156 $117 2004 6/10/2009
3665 LONGFELLOW RD $246,000 1,584 $155 2004 6/9/2009
3161 MULBERRY PARK BLVD $235,000 1,966 $120 2002 5/29/2009
3249 UPDIKE RD $428,800 2,622 $164 2005 5/29/2009
3791 WENTWORTH WAY $566,400 3,914 $145 2007 5/29/2009
4274 AVON PARK CIR $177,000 1,744 $101 2004 5/27/2009
2112 NEW DAWN RD $249,900 1,893 $132 2003 5/18/2009
3149 BARINGER HILL DR $291,000 2,988 $97 2005 5/8/2009
3236 WHITMAN WAY $369,000 2,368 $156 2006 5/1/2009
3777 FOUR OAKS BLVD $240,000 1,893 $127 2002 4/30/2009
4077 COLLETON CT $155,000 1,324 $117 2003 4/22/2009
4221 SUMMERTREE DR $284,000 2,073 $137 2006 4/22/2009
4243 RALEIGH WAY $220,000 1,394 $158 2006 4/8/2009
3295 SALINGER WAY $290,000 2,368 $122 2004 3/27/2009
3669 ESPLANADE WAY $225,000 1,782 $126 2003 3/26/2009
4244 GROVE PARK DR $270,000 1,876 $144 2005 3/9/2009
4300 GROVE PARK DR $264,500 1,584 $167 2005 3/9/2009
3246 SALINGER WAY $307,000 2,242 $137 2005 2/27/2009
3995 FOUR OAKS BLVD $169,900 1,483 $115 2001 2/20/2009
3791 OVERLOOK DR $235,000 1,953 $120 2003 1/28/2009
3728 BILTMORE AVE $237,000 1,683 $141 2004 1/20/2009