Predicting Tallahassee Home Sales Now And In The Future
I wrote a blog article last year about predicting future home sales based upon a correlation between population growth and home sales. I was/am trying to create a model that should demonstrate, over time, the amount of sales we should expect in the Tallahassee real estate market. Today I am going to update that model with new information.
I want to invite your feedback, criticism, support or arguments in any capacity to help move this model forward. I suspect that with enough feedback, we might be able to build a workable model that should identify future home sales to a fairly accurate degree. So please, use the "Leave A Reply" section at the end of this post and give us some feedback!
The real shocker that this model is showing is that 2008 was not the bottom. As a matter of fact, it is showing that 2009 might not be the bottom either!
Future Home Sales In Tallahassee
Just as a review (as if you don't remember the previous article on future home sales in Tallahassee), our model needs the following information in order to project a future home sales pattern:
- Estimated Population - Perhaps the toughest bit of data to come by, Leon County population figures seem to be arbitrarily generated by each and every different demographics web site that I visit. I would love some scientifically-based opininion on the best source of population data.
- Past Home Sales - This is one bit of information that I am very comfortable that I have accurate data. I have been tracking home sales in Tallahassee since 1991.
Assumptions In The Tallahassee Real Estate Predictive Model
Once we have the information defined above, we must rely on a few assumptions for our model to work. Again, if you have any kind of opinion on the validity or usability of these assumptions, please comment after the post.
- Discretionary versus Non-Discretionary Consumers - In any type of market, there exist discretionary consumers (they buy and sell because they want to do so) and non-discretionary consumers (they buy or sell because they need to). During periods of very low activity, the discretionary consumers mostly sit on the sidelines, not wanting to participate in the market, leaving it to the non-discretionary consumers.
- Non-Discretionary Consumers - Non-discretionary buyers (and sellers) exist in any market and over time represent a measurable, predictable ratio of the market population base. If the population is growing, so is the number of non-discretionary buyers. If the population is shrinking, again so is the number of non-discretionary buyers. In its simplest form, the model says a growing market needs more houses, a shrinking market needs fewer houses.
- Discretionary Consumers - Discretionary consumers buy and/or sell because something motivates them to do it. These motivators can be normal life events (job promotion/demotion, new family members, etc.) or outside influencers (change in interest rates, change in tax laws, etc.). The discretionary consumer is not nearly so predictable, but over time we can learn to expect a certain percentage of the population will be motivated to enter the market.
Expected Home Sales In Tallahassee
By using the assumptions and data above, we can projected a "normal amount of sales" for an area. We can make a real estate graph that shows what this normal or "expected" amount of sales should be for each year. We then can assume that, over time, the number of sales will be seeking that normalized amount. So if we spend a few years with more activity than normal, then we should expect a few years with less activity than normal.
The difficulty in the model is that the "normal" sales amount is a moving target, based upon a population number that is not definitely known. But nevertheless, we take the best information available and go with it. The following real estate graph is the result of all this modeling:
Historic Home Sales And Population Growth Drive Real Estate Sales Model
In the graph above, the pink line represents that number of sales that would be normal each year due to the size of the population. The vertical bars show the actual sales (through 2008) and the projected sales (2009 forward) and are broken down into non-discretionary buyers (bright red) as well as discretionary buyers (dark red).
The first thing that really jumps to view is that we spent 6 straight years well above the expected sales level of the Tallahassee housing market. This means that we should anticipate a similar amount of time below the line. Due to this assumption, the next three years look to be "catchup" years for home sales in Tallahassee. The model projects 2009 being the bottom year, but if some of the stimulus package kicks in and we bring discretionary consumers back into the market, then we could be "below normal" for quite some period of time (the stimulus package would be an outside influencer).
Please leave a reply below as I hope this can initiate a lively discussion from all of our readers.
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Discussion
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.
Joe,
After looking at your data, and as a current seller of a TH in 32301, I think you might be right. I was told that if you didn't sell in 2008, be prepared to hold on to sell until 2011 or later. which for the most part lines up with your analysis. I'm a bit conservative due to the initial price of 1st time home buyers; b/c as a FAMUAN grad of 1999, I witnessed students in their senior/grad school yr somehow qualify and buy a primary residence and then investment property when they graduated, only to sell at a profit in early 2004/5. this has also with the rest of the nation and creative financing, driven the prices too high to qualify for 22-35yr age buying group. the rising tide of affordable real estate and 1st time home buyers representing the discretionary personnel, I'm not seeing a single man/woman who's a grad student, undergrad or recent grad, qualify for condo/TH with school prices/loans and real estate rising, the debt to income ratio doesn't seem to cut it, if they intend to purchase and still live a normal lifestyle. Who can really enjoy buying a home and spending 65-75% of their disposable income just to get in the game. Salaries are reluctant to go up, albeit the prices of our social lifestyle, including furniture, electronic devices, cars & travel prices don't seem to drop with the demand. People are holding their prices high for listings sake and then sweetening the deal behind closed doors to protect the value of the neighborhood. Now I do see your predictions of population still growing, how, with a modest birthrate and school enrollment going down, I see trouble for existing businesses ability to expand and attract new workers or find new avenues of revenue that have been untapped. I'm scared for our economy right now, we don't save as much as we need and we need to take time out and pay off our debts, putting it off until tomorrow will only make it worst. just like waiting to due your homework the morning its due, only to realize you're not focused, information isn't relative anymore and fighting a hangover and starvation at the same time. I continue to watch CNN and other news, only to find out they really don't know what to do. I do wonder if EVERYONE cut prices by 10% at the same time would that spark spending or maintain the same steady state-steady flow??? Thanx for sharing.. PS, I do agree that smart money is buying now, but to me, those that are the smart money ones, probably are the ones who in this network pyramid got out of the game early and are resting on their spoils. The shame of it all is that innocent people pay the price. Do you think the big winners are at least holding up the non-profit agencies since they know their donations are down significantly. NO, their resting, waiting to attack and devour the loop holes of the new system, the benefits of a Market Capitalist Society... Not a sermon, just a thought..
Will, great stuff, thanks for commenting. Believe it or not, we are just in a "normal" long-market cycle. Everybody "had to buy" during the boom, now everybody "has to sell." It is a normal part of a supply and demand market (albeit at the extreme end of "normal.").
There are people who are "holding on to their price," but they exist in every market and they NEVER sell their homes. There are some great buys out their and the smart money is scooping them up. However, there are some really bad buys out there, so I advise proceed with caution.
I really appreciate your feedback, because we don't get enough input from the "younger" crowd. I think your generation will be the wise generation that will be much like my grandparents generation, who had lived through the depression and were conservative in their spending habits.... but who knows.
Thanks again and I hope we hear back from you.
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