Tallahassee Real Estate Readers Comment On The Housing Market Model

Posted by Joe Manausa on Wednesday, February 11th, 2009 at 10:34am.

I love it when we get feedback from readers, as they do a much better job of guiding this blog than I can do from my viewpoint at ground level of the Tallahassee real estate market. I often get insight that I would not have been able to generate among my peers with whom I interact on a regular basis.

One reader has popped me comments and questions from time to time and I value his insight. "Steven R." sent the following message after yesterday's blog:

Joe, I think your assumptions about when we’ll be back to normal may be too conservative. If you look at the date that sales fell below the “expected sales” line, it was the middle of 2006 (say: 2006.5). From then, until now, or from then until when you compiled the data, it was 2.6 years or less. We both agree that we’re in some kind of “bounce” based on how the rate of change has itself changed. In fact, your bounce started when you were seeing sales exceed listings…something you track well and we’re grateful. In any event, if you assume that the newest data was collected at 2009.1, and you assume that we crossed the line at 2006.5, this is 2.6 of years of dropping. So if we add 2.6 years from now, we’ll cross the line at 2011.7. But it may be quicker than that, because you were recording sales exceeding listings months ago. In layman’s terms, the rebound can, or may be, as fast as the drop. It makes sense that it may/could be because money is cheap, and all those years of unmet housing sales demand will translate into rising rents. And as rents rise, people are more likely to purchase. Something that has to be kept in mind is that your model is predicting sales, and not prices. Though they usually move together, they don’t always because the cost of financing plays a role in the affordability. Prices may well be as low as they go because anyone who maintains the current “market price” will find they would have an easier and easier time selling as time goes by. In effect, the rebound starts when pricing and demand match up, which appears to have happened based on sales exceeding listings. If they are in equilibrium now and demand continues to increase, prices will also. With rates as low as they are, and prices as low as they are, now is a good time to buy. Yet ironically, human behavior is for people to buy when prices are rising. The smart money is buying now. Steven R
Well, I can't believe it, someone called me conservative....

The Future Of The Tallahassee Housing Market

The following real estate graph is a representation of how the model was formulated. While it might seem complex, what it really does is show me a "mathematical picture" of what has been occurring with Tallahassee home sales since 1991. tallahassee-housing-market-comments-from-readers

In the real estate graph above, the green bars are the total unit sales of Tallahassee homes each year. The red line is the linear trend of all of the data shown (1991-2008), while the yellow line is the ten-year trend (meaning each point on the yellow line represents the average of the green bars for the past ten years). Finally, the blue line is the estimate of where the market would be each year were it not for the "ups and downs" of the market cycles. The slope of the blue line is heavily influenced by the pace of home sales in the 1990s, with much less emphasis being placed on the booming sales of the 2000s.

Tallahassee Housing Market "Back To Normal" By End of 2011

This is the important point.... The blue line above, and the pink line below, demonstrate "what the market should do" each and every year. Now we know that market cycles and outside influencers are always at work on the market, so we perform above or below the "expected" amount each year. BUT ...... over time, the market sales should come back to that line. The key to remember is it does not  matter "when" the market crosses over the line, but rather "how much" it does so. The market should always be seeking zero deviation (gross) from the "expected" line.

tallahassee-real-estate-predicitive-model-update-2-11-09

The Tallahassee Real Estate Predictive Model

Is the model above too conservative? Well, if you look closely at the real estate graph above, you'll realize that it has changed. Steven R. was able to find an error in the model, and now it has been corrected. The numbers that are being shown between now and 2012 have Tallahassee back to zero (meaning .... No more and no less than the "expected" amount of home sales). If you were to look at the numbers in a table (see below), you can see the balance occurs by the beginning of 2012.

Year Estimated Population Non-discretionary Buyers Discretionary Buyers Expected Sales Home Sales Δ From Model
1991 202,029 2,020 2,031 4,257 4,051 -206
1992 205,347 2,053 2,340 4,327 4,393 -140
1993 212,003 2,120 2,558 4,467 4,678 71
1994 218,731 2,187 2,576 4,609 4,763 225
1995 222,779 2,228 2,298 4,694 4,526 57
1996 225,143 2,251 2,621 4,744 4,872 185
1997 229,453 2,295 2,250 4,835 4,545 -105
1998 233,032 2,330 2,509 4,910 4,839 -176
1999 235,871 2,359 2,788 4,970 5,147 1
2000 239,452 2,395 2,476 5,045 4,871 -173
2001 242,522 2,425 2,980 5,110 5,405 122
2002 245,592 2,456 3,581 5,175 6,037 984
2003 248,662 2,487 4,204 5,239 6,691 2,436
2004 251,732 2,517 4,599 5,304 7,116 4,248
2005 254,802 2,548 5,315 5,369 7,863 6,742
2006 257,872 2,579 4,654 5,434 7,233 8,541
2007 260,945 2,609 2,461 5,498 5,070 8,113
2008 264,015 2,640 783 5,563 3,423 5,973
2009 267,085 2,671 529 5,628 3,200 3,545
2010 270,155 2,702 1,098 5,692 3,800 1,653
2011 273,225 2,732 1,372 5,757 4,104 0
2012 276,295 2,763 2,437 5,822 5,822 0
2013 279,365 2,794 3,714 5,886 5,886 0

Thank You For Your Feedback

Thank everyone for the feedback that you send via email. Don't be afraid to post it below as a comment so that everybody can share in your insight (or confusion). A special thanks goes out to Steven R. for pointing out my "overly conservative" error!
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Joe Manausa is a real estate investor and the Broker and Co-Owner of Joe Manausa Real Estate. He can be reached via e-mail through the Tallahassee Real Estate Website or catch his latest writings on the Tallahassee Florida Real Estate Blog , or by calling (850) 386-2001.
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

2 Responses to "Tallahassee Real Estate Readers Comment On The Housing Market Model"

brad wrote: I think the conservative estimate is correct. The market went up way to high way to fast. Sure it could bounce back quiker but If that was going to happen I think the prices in Tallahassee need to drop faster and by a larger percentage than they are. Basically we are extending the downturn by keeping prices higher than they should be. Some reasons why I think the conservative estimate is correct are: In Tallahassee there are tons of places available to rent and rents will go down in the next few years. More and more people are living together to cut costs. Children are moving back in with their parents, family members and divorced spouses are now sharing housing, and people are even delaying getting divorced to save on housing costs. Until people feel financially secure again they won't move out. If the current trend keeps continuing then the demand for housing and renting in Tallahassee will continue to drop. Every announcement of layoffs whether its the schools, the state or the city will continue to add to the amount of people willing to consolidate their housing needs.

Posted on Monday, February 16th, 2009 at 12:01pm.

Joe Manausa wrote: Brad, those are some excellent points. One other thing to consider is population growth. If reduction in jobs reduces the size of our population, then the entire model will need to be adjusted down. We are definitely in for a few tough years ahead.

Posted on Monday, February 16th, 2009 at 1:49pm.

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