2009 in Review, Part I

One of the great things about this time of year is that we are presented with information on how the housing market faired in the previous year. As everyone knows, 2009 will be forgettable for a variety of reasons. One thing we are hoping it will be remembered for, however, is that it was likely the bottom of the current real estate sales swoon.

The market trend I want to discuss in this first post of 2010 is absorption rates. An absorption rate measures the amount of inventory (supply) versus the number of sales (demand). In real estate, these rates are usually reported as the number of months of current sales activity needed to absorb the number of listings presently on the market. According to housing experts at the National Association of Realtors and other groups, a "normal" absorption rate is somewhere around 6 months. Anything less than that starts to be considered a "seller's market" where there are fewer homes to choose from and prices hold firm. Rates higher than that usually signals a "buyer's market" where there are more choices and prices tend to fall, or at least not rise as quickly. This is probably a bit of an oversimplification, but I think you get the point.

So where have we been and what is the trend as we look ahead. I ran a report that shows months of inventory over the past 5 quarters: 4th Quarter, 2008 through 4th Quarter, 2009. My study area was Eastern Racine County (East of I-94), all single-family residential listings and all price ranges. The results were encouraging for those of us looking for an uptick in activity. In the 4th Quarter of 2008, the Months of Inventory was 13.6 months. That number peaked in the 1st Quarter of 2009 at 17.2 months and it has been falling ever since: 11.3 months in Quarter 2; 9.7 months in Quarter 3 and 8.4 months in Quarter 4. If this trend continues, we could expect that the real estate market may be returning to a normal level. Of course, there are many things that will affect this, not the least of which are employment trends, but it does give us some sign of hope as we move into the new year.

As you might expect, however, different price levels produce different results. In 2009, there was much discussion about sales of foreclosures, short sales and the need for sellers to get out from under a mortgage that was no longer affordable. While this trend crossed all price ranges, it seems to have had the biggest impact on the lower end of the housing value spectrum. In addition, the first-time buyer tax credit, scheduled to end on Nov. 30, 2009 but now extended to Apr. 30, 2010, likely had a larger affect on lower priced homes than on higher priced ones. A look at absorption rates from 3 single-family market segments seems to bear this out. With single-family homes priced at $100,000 or less, the months of inventory rates ranged from a high of 12.5 months in 4th Quarter, 2008 to 6.1 months in 4th Quarter, 2009. That is a reduction of over 6 months. Listings priced between $100,000 and $250,000 ranged from a high of 13.1 months in 4th Quarter, 2008 to 7.9 months in 4th Quarter, 2009. Finally, the higher end of the market, defined here as listings priced over $250,000, continues to struggle. In the 4th Quarter of 2008, there was a 21.2 month supply of listings. That number trended downward to 13.5 months in the 3rd Quarter, 2009 only to rise in the 4th to 28.6 months. If a recovery is under way, it may be reasonable to expect that the sellers of lower priced listings will purchase higher priced listings. This presupposes, however, that sellers of these lower priced listings are capable and/or interested in upgrading. It is certainly possible that many people will be out of the home ownership market as they repair their credit. It is also likely that some sellers will take this opportunity to downsize.

Of course, absorption rates do not tell the entire story. A real estate market is affected by a number of factors. and, as is seen in the above data, each market has several sub-markets that may be effected differently. In future posts I will try to bring other measurements that may help us understand what is happening in real estate in Racine. While it will be impossible to predict every nuance of every market and sub-market, it is worth noting that most markets historically act in somewhat predictable ways. It should be interesting to watch and I hope you continue to join me for the ride.

Merry Christmas to All

It is now just an hour or so before the advent of Christmas Eve. While all of us will be busy with family and friends, let me take this opportunity to thank God for a wonderful family and sincere and understanding friends. The economy will be what it is and we will continue to do the best we can to adjust. It is this time of year, however, that brings home why we care in the first place.

Please accept my sincerest wishes for a safe, warm, happy and memorable Holiday Season. I'll see you on the other side of the New Year.

Peace and good fortune to you and yours.

John Crimmings - Google Profile

John Crimmings - Google Profile

Back with a Promise of Better Things to Come

I have been very, very bad at staying on top of this blog and providing its readers with information on the Racine real estate market. I have no excuses.

I think we have seen a bottom in the real estate market here. There have been some positive indicators for several months now and things look to be improving as we move into a new year. Shortly after the first, I will post some information on the statistics of the Racine market in 2009 and try to look forward to 2010.

As the new year begins, so again begins my desire to keep this thing going. I will make every effort to be more focused and to provide information that will help you to again enjoy the American Dream!

Housing Recovery?

The evidence continues to mount that we might be on the throes of a recovery in the housing sector. While that will be great for most of us, there are a few things to remember as you read the headlines and hear the TV news reports. Like the downturn of the past few years, a recovery is likely to start regionally. Today you are hearing about large year-over-year increases in sales in the West and the South, particularly Florida. But those area were also the hardest hit and the first to sink in late 2006. Next, keep in mind that the housing recovery will be measured in terms of slight increases over previous years' results. Please do not expect a tremendous bounce in terms of sales volume. What we really need now is a sustained upturn that will last for many years. Finally, keep in mind that as the housing recovery gains strength, the unbelievable opportunities of the past few months will slowly start to fade. Housing prices will likely start to firm; inventories will decline; interest rates will stabilize and start to increase and other market conditions will begin to swing back to a neutral to seller's market. For you buyers, and especially 1st time buyers, the perfect storm may be about to blow out. If you can, now would be an excellent time to dive into the market.

Buy or Rent?

There was an interesting article in this morning's newspaper, Money Section, about how many tenants are finding it more attractive to purchase rather than rent. The article used a formula and I thought it might be interesting to see where Racine fit into this. In a previous post I stated that the median price of a home in the City of Racine was $93,000. Using that figure and the formula outlined in the article, here are the relevant figures I calculated for Racine:

• Purchase price: $93,000;
  
• Downpayment: 10% ($9,300);
  
• Monthly Principal and Interest payment (based on an $83,700 mortgage at 5.2% for 30 years) $459.61;
  
• Real estate taxes (Current city mil rate of $21.805/$1,000 and assuming an assessment of $93,000 with the total annual tax bill being $2,027.87) $168.99;
• Private Mortgage Insurance of $36.27
• Homeowners insurance of $30
  

The monthly total is $694.87. I'm not sure what the median rent is in the City but I would guess it to be somewhere between $600 and $700 per month.

If all of the above is accurate, you could buy a median priced home in Racine for about the same as renting an apartment. Now remember that this assumes you have $9,300 for a downpayment and other dollars needed for closing costs, you feel comfortable in your employment situation and, of course, that you realize that homeownership is not for everyone. But it is an interesting time to be considering a home purchase (and remember, if you have not owned a home in the last 3 years and close before December 1, you could get a tax credit of up to $8,000). Finally, keep in mind that the real estate taxes, mortgage interest payments and some other charges may be tax deductible where rent generally is not. Interesting stuff and it seems to show that Racine compares very favorable with the rest of the country.

American Dream or American Nightmare

I happened to be listening to a discussion on the radio about homeownership and the changes of the past few years. As we all remember, buying a home, raising a family and benefiting from the stability of putting down roots was indeed the American Dream. And the buying the home part was usually the most exciting. But it must be remembered that owning a home was never really designed to be the greatest "investment" one could ever make. Housing is shelter. It is an asset and it gets older every year. I remember a story my father, also a Realtor, told me when I was about 16 years old. I remember him telling me that real estate is a wonderful thing. "We bought this house (our family home) 14 years ago for $12,000. Now we are selling it for $14,000. John, the house is 14 years older than when we bought it, we lived here and raised a family, it provided us shelter AND WE'RE SELLING IT FOR MORE THAN WE BOUGHT IT FOR!" That was the thinking back in the 1960's. Your home was not designed to appreciate in double-digits and provide a source of cash for things like vacations, cars, TVs, etc. The latter, unfortunately, is the thinking of the 90's and 2000's, and it is little wonder that some homeowners find themselves in an American nightmare. I contend, however, that this is not the fault of housing. It is the result of less than wise decisions, an incredible amount of greed on the part of many, including real estate people, lenders and others looking to "get their share", and a press that couldn't tell you often enough how hot the real estate market was.

I suggest to you that the American Dream is alive and well. If you have an opportunity to purchase a home, raise a family and put down roots, please do so and do so now when we have lower prices, lower rates and plenty of incentives in the marketplace. I promise you that, if you use common sense in your decisions, avoid unreasonable expectations as to the appreciation of your house, make regular payments to your lender and expect to live in you home a minimum of 5 years, you will experience the true dream of homeownership and you may just be as excited as my father was about the "value" it adds to your life. Good luck and let me know if I can do anything to help.