Defining Market Bottom In Real Estate
I received a great question from an active reader in the blog yesterday that made me realize that two definitions of the real estate market bottom are lurking around out there and that I need to provide better clarification about "which real estate market bottom" that I am referring to when I comment about the current state of housing market in Tallahassee.
When I refer to the state of the housing market, I am definitively referring to the number of home sales in Tallahassee over the past 365 days. By studying this "rolling average" of home sales, we are able to remove all seasonal effects from our data and thus we can tell the current direction of the real estate market.
Housing Market Bottom Reached In Tallahassee
When we look at the graph below, we see that the current trend is rising from what appears to be the lowest point home sales will reach (going all the way back to January 1991).
Again, it is too early to say that we have definitely seen the bottom of the housing market back in August, but it sure looks like things are going to turn out that way.
Another Way To View The Housing Market Bottom
But we had a great question from a reader who asked:
Thanks...so the upswing is not an upswing and under the current upswing we are still losing ground?
And that is when I realized that I needed to do a better job of clarifying my definition of the housing market bottom.
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I have written quite a bit about the stages that this real estate market will go through before we see price appreciation again. Right now, we are dealing with an imbalance in the supply and demand dynamics of the Tallahassee housing market. There are over 11 months of supply of homes, with even more looming in the shadow inventory.
What this means is that when people try to sell their home, they have more competition than there are buyers for these homes. Tallahassee is currently experiencing a failure rate for hopeful home sellers of 81%, so pricing pressure is very strong. People who want to successfully sell their homes are having to price very aggressively and execute flawlessly on their marketing and staging plans.
Remember, Buyers have options, so Sellers are competing with each other in a very thin market. But the good news is that the number of home sales is increasing now, so supply and demand are moving towards each other for the first time in over 3 years. Eventually, we will hit market equilibrium (roughly 6 months of supply) and we return to home values appreciating.
I hope this clarifies my use of the term "real estate market bottom." When I do, I am referring to unit sales as opposed to real estate depreciation/appreciation.
Wow that first chart looked like a doozie, but really the second chart is much more important for the local housing market - average prices on a home in Tallahassee really haven't fluctuated much which is a good thing. Pretty insulated market out there?
Actually, look where we were before the rush of the (initial) November First Time Home Buyer program. Our prices are down about 23% from the top of the market (2006 is prior to this graph), but you are correct in that they are less volatile than many other areas.
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