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by Jace Stolfo
on Monday, October 20th, 2008 at 11:59am.
The 3rd quarter showed some very positive signs in comparison to the previous quarters. The number of homes for sale began to decrease and for the first time since May 2006 and sales actually increased year-over-year by 18.2% in September.
Q3 '08 compared to Q3 ‘07
Overall home sales in the third quarter were only down 12.68% compared to a year ago (Figure 1).
The previous two quarters for 2008 were down 38% (Q1) and 24% (Q2).
Since the market began to slow down in May 2006 the number of homes for sale continued to grow when comparing year-over-year. In July, August, and September that trend was finally broken. Currently, there are 11% less homes for sale than a year ago. Figure 2 shows the percentage change in the number of homes for sale compared to the same time the previous year.
Since August 2006, home sales had been declining by up to 45%. In recent months, those declines began to shrink and September actually posted an 18.2% increase compared to the previous year. Figure 3 shows the monthly sales and how they compared in percentage to same time the previous year.
Absorption rates still not in balance
As we continue to look for balance in supply and demand a useful measurement to follow is called an absorption rate. An absorption rate simply says that if no more homes came on the market, and the sales rate stays the same, how long would it take to sell the remaining homes. It is generally accepted that a balanced market would be represented by a 5 or 6 month absorption rate.
Absorption rates for new construction have continued to improve and are now down to about 8/months. Existing homes have somewhat leveled off at around a 10/month absorption rate. In order for prices to stabilize these numbers need to come more into balance. Figure 4 shows the Absorption rates for both new and existing homes for the last 12 months. The lending industry
The myth that you hear today is, "you just can't get a loan." That is simply not true; what we have seen is a tightening of qualification standards. If you have good credit and can verify your income it's very easy to get a loan at historically low rates. For example, I just closed on a home with a first time homebuyer who had good credit, 3% down payment, and they received a 30 year fixed rate at 5.75%. The standards we are now seeing are good lending practices as they only give loans to people who are actually qualified to buy. Had these lending standards been in place 3 years ago we would not be our current financial situation.
A look ahead
Sales in October have slowed due to the recent financial news and turbulence in the markets. So far October is off pace from last year by about13%. It is going to take some time to see what affect the government's bailout has on the economy and consumer confidence.
Data Source: Intermountain MLS. The accuracy of this information, while deemed reliable, has not been verified and is not guaranteed. This information contained in this letter is for general market analysis. No representations or warranties are made as to the past or future appreciation or depreciation of property values.