How many times have you read an article raving about local real estate opportunities, only to question the source and their motivation for spreading such a rosy picture? As a Lehigh Valley Real Estate Broker, I have to admit that it sometimes appears to be self-serving but there is reason for optimism. Since data is a lagging indicator of the overall market performance, it’s important to put it in a historical perspective tempered with real time opinions from those working in the industry. Here’s how we see the Residential Market with 10 months of data in the books for 2015.
Pending “Under Contract” Sales have surged this year with a 19% increase in October over that same month last year and an increase of 16% year to date! That’s a strong start to a typically slow 4th Quarter and it’s the 5th straight year we’ve seen positive increases. But few care how many went under contract because they are still subject to inspections and appraisals; what really matters is how many are actually closing.
Closed Sales had a tiny drop of 0.3% in October from that time last year but, Year to Date we have seen an increase of over 13%. This was realized due to the best Summer Closings since 2006! Overall, 2015 has resulted in similar numbers as 2007, which is extremely encourag- ing since it’s only a couple years past our Peak in 2005. But few care how many are selling when their primary concern is their home’s value.
As the number of Closed Sales peaked in 2005, home prices had continued to increase until they peaked in 2007. Soon after, they began falling like a rock and we didn’t see them bottom out until 2011. Since that time, we’ve seen both Median and Average Sale Prices modestly increase each year by about 1 to 2%. This year is no different with an increase of 2% year to date over 2014. Although this may seem like an anemic and slow improvement, it’s ac- tually a very positive sign that it’s happening in a steady, controlled manner. One controlling factor for the slight Property Value increases have been a very conservative appraisal process, causing many sellers to reduce their contract sales price when appraisal values came in low.
There is reason for optimism, though. The increased number of closings has created a shortage in housing inventory. Although the number of closings increased 13% over last year, the number of new listings has actually dropped by 0.3% year to date. Buyers have had fewer options from which to choose and this has created some isolated “bidding wars” on the nicer homes. The number of homes on the market has dropped over 28% since last year, which is our lowest since 2006! The consumption of this older inventory is most likely the reason we’ve seen the Average Number of Days on the Market to increase after certain months in which these homes sold. Overall, we are still seeing a 3% reduction in Days on the Market to an average of 68 Days.
With the increase in demand and the very slight increase in home values, we’re realizing a 3% improvement in the Affordability Index, which measures the percent- age of median household income needed to qualify for a median-priced home under prevailing interest rates. However, we don’t expect this trend to continue. Rates are still extremely low and, as the economy continues to improve, it’s expected they will increase over the course of 2016. Prices are also expected to increase as demand exceeds supply, so all these factors should make buying a home slightly more expensive.
So, in summary, the buyer activity remains strong while prices and mortgage rates remain low! Buyers should act sooner than later and Sellers should consider putting their homes on the market earlier in the Spring before buyer’s buying power is diminished by higher interest rates. Pre- pare your home to show well and listen to professional advice when setting your list price. Remember, when buyers see an overpriced home, they buy the neighbor’s property instead!