Is the market moving too much too fast?
Existing home sales and prices are up, but inventory is drastically low.
The good news is more homes are selling and at higher prices. The not-so-good news is the housing stock is really thin: The listing of available properties is at its lowest point in decades.
Both newsworthy items came from the Grand Rapids Association of Realtors’ most recent market update, and the two findings are feeding off each other and defining the current market for sales of existing homes.
The latest GRAR data showed the average West Michigan home sold for $155,648 in September, a dramatic 12 percent increase from the previous September. Over the year’s first three quarters, however, the average sale price was $153,800, or slightly less than a 1 percent hike over the first nine months of 2012.
The number of transactions also was up in September, by almost 14 percent from the same month last year. For the year so far, 9,873 homes have changed hands in the market compared to 9,731 sold through last year’s third quarter. And some homes are selling at nearly the speed of light.
“If you list something today and you price it right, it’s going to go. I can give you story after story after story. One that I heard yesterday is somebody put a (for sale) sign in the yard and somebody pulled up in their car and said, ‘I want to see it now’ and then wrote an offer,” said Julie Rietberg, GRAR CEO.
“It’s like the market we had way back. We haven’t seen this kind of market for years. I’m going to say it’s almost too much too fast. Although it’s a really, really hot market and it’s probably good for sellers, who are now at least seeing the return of the value of their properties to what they’d like it to be, it’s not there in every case yet,” she added.
Rietberg pointed out the recent rise in selling prices shouldn’t be applied across the board, and her member realtors aren’t doing that. She said when the sales are analyzed, many of the increases are in certain areas of the market, so it’s primarily a neighborhood-by-neighborhood phenomena.
According to GRAR data, the average sales price peaked in 2006 at $163,526, but that number proved to be the result of a steady decade-long climb from the average selling price of $112,106 recorded in 1997.
So what’s going on? One factor responsible for what is being seen as a fairly recent rapid increase in sale prices is a low supply of quality products.
“Everybody is unanimous in feeling that we do not have enough inventory,” said Rietberg.
The GRAR data supports that statement. The listing of available homes has averaged 3,344 for the first nine months of this year. Going back to 2006 when the average price peaked, there was an average of 10,043 homes being listed throughout that year.
In fact, the current number of average listings is down by about 200 from 2011, while sale prices have gone in the opposite direction over that same period. The average sales price in 2011 was $120,404, or $35,000 less than September’s average.
Rietberg said the current inventory is roughly half of what would be considered a balanced market, which is ideal because a balanced market doesn’t favor sellers or buyers.
“It’s a good, healthy market, and we’re significantly below that,” she said. “We’ve always had inventory that was twice or more than we have now.”
Meanwhile, the low inventory has helped to create a sellers’ market, with buyers having the tendency to snap up houses with strong offers before someone else buys their dream home. Most of the listed prices have reflected the market, but some offers sellers have received have exceeded it and sometimes by nearly half.
“The danger (of the current inventory) is it affects the price by quite a bit. We’re seeing in some neighborhoods a double-digit increase in price. Some who are on the selling end of it love it. But if you take a bird’s-eye view of it, some would say it’s too much too fast,” said Rietberg. “There are more buyers than houses available that meet their needs. We’re seeing multiple offers on houses right now.”
A report from Zillow.com, which tracks the nation’s existing housing market, said nearly a quarter of the homeowners in the market were underwater, meaning they had negative equity in their homes because the amount they owed on their mortgages was more than the current market value. Some feel that situation has contributed to the low inventory because those people would likely have to absorb a loss on a sale.
Rietberg, though, doesn’t agree with that scenario.
Rietberg told the Business Journal she wasn’t certain the Zillow.com report was all that accurate and was trying to get more information from the online firm as to how it arrived at its number. She felt the firm’s equation missed a valid portion of the total market.
“I can tell you that I am quite certain what they don’t take into consideration as part of those numbers is any houses that are already free and clear. Anybody who owns their home outright isn’t included in that. They’re trying to assess average mortgage balances with average values, so I don’t know if that number is exactly correct,” she said.
“I think there was a time when it was half to three quarters, so one could argue that 25 percent was better than that. But I honestly think it’s lower than that.”
Rietberg suspects the market’s current low inventory will continue through the remainder of this year and slip over into next year. In making that comment, she raised another issue that is contributing to the market’s lack of product.
Although the area’s homebuilders are doing a lot of custom homes now, she said they aren’t building as many spec homes as they once did, which would raise the housing inventory. She said there is a good reason they’re not doing that.
“If you talk to any of the builders in town, it’s because they don’t have enough skilled labor. A lot of the framers and a lot of guys and gals that helped in the past either took other jobs or moved out of the area or something. But the kind of skilled labor that we need to keep up with demand isn’t there either,” said Rietberg.
“Part of it is we’re not adding to the new housing stock as quickly as we’d like, so there are inventory shortages in both new and existing (homes). I suspect it will go on for awhile yet. How much longer remains to be seen.”
Rietberg said she was curious to see what will happen to the market’s inventory level over the winter months, which is normally a time when people turn their attention to other things, like the holidays, and put aside house hunting.
“I’ve been with the association for 31 years, and the inventory has never been this low as long as I’ve been here,” she said. “So it’s kind of an unknown territory for a lot of us.”