Take A Lesson On Real Estate Statistics From Homer Simpson
When it comes to understanding real estate statistics, who better to turn to than Homer Simpson?
In an exclusive interview with Kent Brockman, Homer was quick to demonstrate that you can use statistics to prove any point you are trying to make, even if your interpretation is not valid.
I bring this up because recently a first-time reader wrote me to argue this point based upon her singular reading of one of my blog posts.
But long-time readers could tell her that we don't take a singular view of the market.
Real Estate Statistics Require In-Depth Analysis
So the reader viewed a recent article which addressed the rising tide of homes that failed to sell in Tallahassee and chided that I was faulty in my conclusion. Basically, she felt there was more going on than what you could glean from one singular graph.
Of course, I wrote her and let her know that she was correct, that my conclusion was based upon more than the real estate graph in the blog post, it was based upon the hundreds of different charts and graphs that I maintain of the Tallahassee real estate market.
How Do We Explain This Crazy New Trend?
So today, I will share a perplexing trend occurring in the Tallahassee real estate market. I have written about it in the recent past, but I am still not convinced anybody has provided a fair opinion on why it is happening (including me).
The following graph shows two key trends from the daily hot sheets, new contracts and new closings.
Each line shows the average over the past year, with the purple line measuring new contracts on homes in the Tallahassee MLS, while the green line shows new closings in the MLS. We would expect there to be more contracts than closings at all times, because a fair amount of contracts never make it to closing, while all closings require a contract. Right?
The purple line shows that the number of contracts being recorded each day in the MLS is falling fast. Were this the only real estate statistic that I maintained, I would conclude that fewer buyers were purchasing homes.
But the green line clearly shows that we are closing more homes each day in Tallahassee than we were a year ago, all the while were are writing 4 fewer contracts each day. How does that happen?
Slower Homebuyer Activity
I have assembled some of my thoughts on what is occurring, but the green line in the graph above does clearly show that the number of homebuyers in the market is declining. But they are declining at a far slower rate than the new contracts (purple line) would have us believe.
- Fewer Short Sales - We have reported that the number of listings being sold as short sales is winding down. For years, they represented as much as 40% of all the listings of homes for sale in Tallahassee, yet today they represent less than 15%. For those of you who have tried to buy a short sale can attest, the process is often long and arduous, so many buyers give up before a bank responds to the contract. Thus, it was common for short sales to go under contract multiple times (but each one only only closed once). Short sales definitely contributed to growth of new contracts over the past four years, so fewer short sales today is definitely part of the reason we should be seeing fewer contracts.
- More Pocket Listings - Sometimes a real estate agent sells a house that was not formally listed for sale in the Tallahassee MLS. Once closed, agents often record the sale "for comp purposes" so that everybody who uses the MLS will know of another sale that they can use to determine home values. This could be the answer ... but it's not. I have a way of testing the trend of homes entered this way, I look at the trend of homes being sold with zero days on the market, and my test has shown that it is not the culprit.
- Great Percentage Of For Sale By Owner - Much like a pocket listing, many "For Sale By Owners" have their home sold by a real estate agent who works on behalf of the buyer. And often times these too are recorded after the closing by the agent so that their peers know another home has been sold. But these would also show up on our "Zero Days On The Market" report, so again, this is not the reason that we are seeing fewer contracts in the Tallahassee MLS.
All of the reasons listed above certainly contribute to the declining trend of new contracts in the MLS, but they do not fully cover the 60+% reduction that is occurring. The current pace at which contracts are being written would yield the worst year of home sales that I have recorded in more than 20 years, yet our closings are still higher than the past few years.
Consider this a "shout out" to all my mathematically inclined readers, plus those with real estate experience, to give us some additional thoughts on what could be occurring. You can leave a comment below, or you can use the Google Plus social application to let us know. I'd love to hear more thoughts on this disturbing trend, even if it's from Homer J. Simpson himself.