Predicting The Housing Market Turn
Defining The Turn In The Housing Market
Perhaps the first thing I need to do is to define what I mean by "the turn in the housing market." In Tallahassee, we are currently seeing fewer and fewer homes sold on a daily basis (take the past 365 days, count the number of homes sold, divide by 365). By looking at a real estate graph of daily home sales, we can say that the housing market is clearly getting worse each day.
Another Way To Look For The Housing Market Turn
Monitoring the daily home buyer activity graph is a bit tedious to say the least. While we consider it important (as well as update the graph at The Market Bulletin twice per week), we also could just review Year-Over-Year performance to see if we have a chance of a market turn.
As you can see from the real estate graph above, we have experienced 35 straight year-over-year declines in the Tallahassee real estate market! Notice that no such streak exists (whether positively or negatively) in past, with the previous record on continual runs in the market to be at 9 months at the most! This tells you how severe this current downward trend really is.
Predicting The Housing Market Turn In Tallahassee
Some of the factors that affect our housing market in Tallahassee are the same as in any other market in America. These include employment rates, mortgage rates and availability, and consumer confidence. But even with the current projected job and budget cuts at the Universities and the State, Tallahassee is projected to having one of the more stable economies in the State of Florida. Additionally, most economic forecasts predict population growth in Tallahassee! So, what is my prediction ... I based my prediction on the following:- The Tallahassee housing market has fallen 63% from the peak (extreme decline)
- Tallahassee population growth is near or greater than 0% (meaning no real decline)
- There is a statistical correlation between population size and home sales activity
- Home affordability is equivalent to levels found in 2004
- First Time Homebuyer Program Is Providing "Free Money" for Buyers through November
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Discussion
Joe,
Not sure if I'm buying your call on the bottom. Unemployment not only has to stabilize, but also needs signs that employment is starting to rise, that is not happening nationally as well as locally. We also need a more diversified job market here. When Tallahassee had a chance to attract an new industry..(Biomass Gas & Electric)..it gave a cold shoulder to it. Other companies take note of a local communities business climate and this did not show us in a good light for attracting more outside industries. I know attracting industry is a long term problem and would not effect any short term bump in sales, but attracting industry and business could help balance an unequal tilt towards government jobs in this area. The sales increase you mention , now includes short sales and foreclosures. This phenomena has never been a factor in previous history of sales. With state and local tax revenue decreasing, the future effects on government unemployment has not showed the full effect yet. The 8% home buyer credit will expire in November.....causing a false bump up in sales before its end, but surely a fall off in sales activity after November. In past recessions and downturns the recovery was fueled by the consumer using their house ATM (home equity) to stimulate the economy. That source is gone now. The availability of credit to the consumers and small businesses is not there. Look at the local businesses that have closed or on the brink of closure.....how many are barely hanging on? There are so many variables that could prolong this mess, like higher interest rates, more unemployment, higher gas prices, a ballooning deficit fueling future inflation, higher taxes, more foreclosures. I just do not see the fundamental change that is needed to call a bottom yet. I hope I am wrong and you are right. Thank god you are not the typical industry mouth piece that seems to call a bottom every month. It will be an interesting next 6 months.
Thanks for the detailed comment Doug. I agree with all of your points. Here is something to consider ...
The "turn of the market" is not the "return of the market." It is just the lowest point in unit sales. After the turn, prices will continue to drop until market equilibrium is reached (6 months of supply, plus or minus).
Anyway, time will tell. This is my first call since November when I said it could happen this year (but no earlier than March).
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