Thursday, May 1, 2008

April Sales Figures...Good news/ bad news

The current real estate market reminds me of a “bear” stock market.

There have been days in the past …even in the most recent past six months- when the stock market has been down “big time” with the DJIA down triple digits. During these periods of time I just cringe and don’t want to know what’s happening because it is so depressing- thinking about all of the paper $$$ losses and not being able to do much about it. At the same time the various CNBC “talking heads” predict another 20% drop in stock prices and I just keep thinking about the still larger drop in my stock portfolio. Psychologically, I want to sell everything at any price and limit my losses. However, one thing that I have learned from over 30 years of investing in the stock market is that a contrarian point of view with a long term prospective is a good strategy. Large declines in the stock market point eventually lead to bargain prices with upside potential gains…. Remember the long time investment adage “big low… sell high”. However, in the heady days of the tech stock market boom, some stocks got way too high and dropped precipitously…. and haven’t come close to recovering… even after more than five years. However, solid performing stocks have recovered nicely.

I believe that the same thing will become true with the current real estate market. There are obviously overheated markets (e.g., Florida, California) where home price appreciation reached absurb levels and now these areas are correcting sharply. These markets may never again see prices as high as they have been. Too many new homes with steep price tags were built and there were not enough buyers who could really afford them. Now with the sub-prime mortgage problems and the accompanying foreclosures, short sales, etc., there are many homes becoming available with more reasonable price tags. Again, the “talking heads” are calling for greater price declines before it is over, but given our country’s demographics, there is likely to be a strong long term demand for housing at a reasonable price in the future. The inevitable drop in home prices that will occur over the next 6 months - 2 years will be uneven but will present opportunities for both buyers and sellers.

Now for the latest Longmeadow state of the housing market…
Part I- April 2008
[click to enlarge chart]

The numbers were similar to the rest of the country... April sales were down to 8 houses sold vs. 15 in 2007 and 10 in 2006. Jan-Apr 2008 YTD sales were also not very good with 31 vs 56 in 2007 and 47 in 2006. The large drop in YTD sales (-45%) vs. last year is similar in many other regions of the country.

The chart below shows that the median sales price (6 month trailing average) for homes sold in April 2008 showed a drop to lowest levels in almost two years.

Below is a chart showing the relationship between recent Longmeadow real estate Sales Prices and Assessed Values (data obtained from Vision Appraisal website).

Part II- The Good News

Walking around my neighborhood and driving around town recently I know of at least 10 homes that have been “sold” and will likely close in May or June that are not included in these latest sales figures. In addition, a local realtor told me recently that she had sold 5 houses in the last two weeks and was involved in one sale that involved 5 bids with the final price significantly higher than the asking price. Using the recent past home sales figures (or stock market performance) to predict the next 6 months – 5 years is akin to driving a car using the rear view mirror. While we are obviously not ready to declare that the Longmeadow real estate market has become a “seller’s market”, there are signs that maybe some improvement is in the making. One interesting comment in the April 24 Springfield Republican article by Susan Renfrew, President of the Massachusetts Assn. of Realtors was interesting: “people selling in this market also need to remember they’ll end buying their next home in the same market”. Let’s hope that by late summer/ early fall some sense of normalcy will have returned to our Longmeadow real estate market.