ocrealestate

By Steven & Mikey Hall 

Before we start let’s remember that all real estate is local and the NAR is a national organization. So we’ve got to take its data with a grain of salt.

Are We There Yet?

In our last post we were working on the question of whether or not the real estate market has finally reached bottom. About all we were able to conclude was that existing home sales were increasing. The problem was, rising sales doesn’t guarantee that prices will also go up.

In the meantime, Lawrence Yun, the National Association of Realtors Chief Economist has noted the increase in sales, and even gone a step further and stated that increasing sales “is the first and most necessary condition before any other housing measures can stabilize.”

But Why Do We Need Increased Sales?

According to Mr. Yun, the answer is simple. It takes sales to decrease the standing inventory and prices will not go up until the inventory goes down. Sounds like simple supply and demand, and it basically is.

So What Are Prices Doing?

Well ,on a national basis they have declined a little over 6%. On a regional basis the Western Region saw prices fall about 16%. Doesn’t sound good. But we need to consider two concepts: (1) It takes time for rising volume to reduce inventory; and, (2) These are national numbers.

If we go to the Market Trend data we see that in Orange County, California, price per has been basically taken no consistent direction between 1/1/08 and 6/1/08. This data seems to be saying that the increase in inventory is being absorbed more or less as quickly as it’s created.

How delicate is this balance?

We think it depends on a lot of general economic factors, many of which could go one way or another on very short notice.At best, the local market is showing some stabilizing trends and the next month will tell us a lot about where it’s all going. 

So the answer to the question, “Are we there yet?” remains, “Maybe.”

       Are We There Yet?   by Steven & Mikey Hall

The $64 question is - “Has the real estate market finally reached bottom?”

Since all real estate is local, there can be as many answers to this question are there are neighborhoods. Here in Orange County, conditions in Rancho Santa Margarita don’t necessarily determine conditions in Mission Viejo or Aliso Viejo or Laguna Niguel. In fact, each of these communities has its own distinct personality. National numbers are quite likely problematic when it comes to predicting what’s going to happen in your housing tract.

The Index For The Pending Sales of Existing Homes

Now, having said there can’t be a discussion of the real estate market in general you should know that the National Association of Realtors (NAR) has created a neat little index for the pending sales of existing (as opposed to new construction) homes. The index is based on the average number of homes sales in 2001. For reference, an average number of home sales equaling that experienced in 2001 would score an index value of 100.

So what does the index tell us?

The April index for the West, the Midwest and South went up from March. The index for the Northeast went down.

In the West, the score is 98.8 or about 8.3% higher than the previous month and 4% higher than the previous year. In the Midwest the index moved up 13% over March to stand at 83.7. The South went up 4.6% to 88.8 and the Northeast went down 1.9% to 79.3. The national trends are therefore toward an increasing volume of sales.

What’s It All Mean?

If we look at pending sales as the market or sales volume, the index tells us that while sales volume is increasing it is still below the 2001 averages. Frankly, in my opinion it would be a mistake to use this index as an indicator of the direction of market price. For example, one can imagine a market in which prices are cascading downward on large volume. An up market can also occur on very slight volume (short supply). I think we can comfortably say this latter situation would be reasonably rare.Still, rising volume is generally seen as a positive indicator and the NAR’s index is generally positive news.

As a side note the total number of sales (all prices and all types) in Aliso Viejo, California for January through May of 2008 has steadily increased. This means the local Aliso Viejo sales volume is moving in the same direction as the NAR’s index for the West.

mailto: AskMikeyHall@gmail.com