Thursday, July 24, 2008

Hmmm, Housing bottoming? Not so much....

Homes are safe investments, right? Well, the problem with that theory is that the law of supply and demand applies to homes as well and right now supply is exploding and demand continues to weaken.

"The National Association of Realtors reported that sales dropped by 2.6 percent last month to a seasonally adjusted annual rate of 4.86 million units. That was more than double the decline that had been expected and left sales 15.5 percent below where they were a year ago.

The downward slide in sales depressed prices, too. The median price for a home sold in June dropped to $215,100, down by 6.1 percent from a year ago. That was the fifth largest year-over-year price drop on record."

I always distrust data from the National Association of Realtors because they have a vested self-interest in promoting how good the housing market is. Given how ugly this data is, I'd suggest that in reality the real estate market is actually a good deal worse than this data shows.

The inventory of unsold homes sits at 11 mths supply which is a level we haven't seen since you were rocking out to Quiet Riot on your new boombox. Some others have noted that this inventory doesn't include homes listed for sale outside the Multiple Listing Service (Bank owned, foreclosures, etc), which is a growing number as well, and means inventory is even higher than reported.

Locally, the real estate market continues to defy logic but inventory in Jefferson-Lewis stands at 2,400+ listings and just a few years ago it rarely exceeded 1,000 listings. I think as long as government spending stays strong the local market will remain relatively healthy, but I think you can see a day 2-3 yrs down the road when state, local and Federal spending is cut and that will directly impact local home prices.

I think the upper end of the local market (waterfront properties, large new construction) is likely to be impacted first. The days of someone selling their overpriced split ranch in Long Island and moving up to the St. Lawrence seem to be over because that split ranch in Long Island is now one of 700 properties sitting with a 12 mth old "For Sale" sign in the front lawn. This demand destruction is coupled with a sharp increase in supply of $300k+ homes for sale. Four years ago there were fewer than 25 homes for sale priced over $300k. Today in Jefferson-Lewis counties that number is................ 219!!! That's nearly a ten-fold increase in high-end inventory in 5 yrs.


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