From the Otteau Group
HOME SALES DECLINE FURTHER AT YEAR END
The pace of home sales in New Jersey declined further in December providing compelling evidence that the housing market recession has not yet reached bottom. In December, Contract-Sales activity declined 24% below the November pace and was 31% less than in December 2006. When considered against the backdrop of high Unsold Inventory levels and a looming economic recession, it appears certain that existing-home prices will continue their decline into 2008. As a result, strategies of ‘waiting until Spring’ are ill conceived as overpricing inevitably leads to extended marketing times and lower prevailing market price levels. Best-Practices for a weakening housing market is to price ‘ahead of the decline curve’ to shorten marketing time and capture a higher selling price before prices drift even lower. From the new construction persepective however, many home builders have already embraced this strategy with Right Pricing! that reflects the current market realities. For the next segment on our Right Pricing! Strategy, register to attend our 2008 Spring Workshop Series next month.
Despite the ongoing market decline, some bright spots are emerging. Unsold Inventory declined for the fourth consecutive month and now stands 16% lower than in August, reflecting 12,000 fewer homes on the market. Also encouraging is that mortgage interest rates continue their descent providing a boost to home buyers’ purchasing power and helping to close the housing affordability gap in New Jersey. According to Freddie Mac’s latest Primary Mortgage Market Survey® (PMMS®), the 30-year fixed-rate mortgage averaged 5.48 percent for the week ending January 24, 2008, down from 5.69 percent the prior week and 6.25 percent last year at this time. The last time mortgage rates were lower was March 25, 2004, a time when home buying activity was at a frenzied pace. Another positive factor is yesterday’s announcement that President Bush and House leaders have agreed on an economic stimulus package that would allow Fannie Mae and Freddie Mac to raise the limit on the loans they purchase from $417,000 to $625,500. Similarly the FHA limit would be increased from $362,000 to $725,000. The effect of such increases would be to expand the pool of money for borrowers of so-called Jumbo Mortgages thus increasing liquidity and reducing interest rates for these loans in the process.
The take-away from all of these developments is that while the market has further to fall, the bottom point is getting closer. Home buyers should take notice of these developments as 2008 presents an unusual combination of being in the ‘driver’s seat’ of price negotiations at a time of record low interest rates. Those who wait too long will eventually find this opportunity window closed when higher interest rates and firmer pricing returns to the market.
Firmer pricing and interest rates and bears, OH MY!
Oh, well, priced out again. There’re worse things than being a renter.
Like OVERPAYING for somebody’s POS! (Said in Sam Kinison voice.)
I’m really upset that Otteau is playing games with seasonality..
Despite the ongoing market decline, some bright spots are emerging. Unsold Inventory declined for the fourth consecutive month and now stands 16% lower than in August, reflecting 12,000 fewer homes on the market.
So what? How is this a bright spot?
December inventory is *always* lower than August, which is right in the middle of the peak yearly inventory range.
According to GSMLS:
In 2001, inventory fell 14% from August to December.
In 2002, inventory fell 6% from August to December.
In 2003, inventory fell 18% from August to December.
In 2004, inventory fell 22% from August to December.
In 2005, inventory fell 8% from August to December.
In 2006, inventory fell 16% from August to December.
In 2007, inventory fell 16% from August to December.
#2
As my nephew would say, eggzactly!
Does Mr. Otteau care to comment on the year-over-year December inventory? Or would that block out his little ray of sunshine?
Or would that block out his little ray of sunshine?
Unfortunately…
It’s up 4%.
But if you really want a ray of sunshine, the pace of YOY increases has slowed dramatically. Compared to the rates of increase we saw over the past two years, inventory growth has basically flatlined. I’m surprised that point wasn’t mentioned.
i wonder how much of the decline is “discouraged sellers” much the same as workers and unemployment rates.
Just stumbled across this blog…very informative. As for Mr. Otteau, is he aware of the following?
1. Housing corrections typically last 5 or 6 years. We’re only in the bottom of the second inning here.
2. We’re in, or headed towards, a recession. A large number of workers will likely lose their jobs this year and far fewer jobs will be created.
3. Resets on a variety of adjustable ARMS in the face of declining home values means more defaults and stress in the housing market. Has he commented on the hundreds of billions in ARMs that will be resetting each year through 2010?
4. Almost all potential buyers that would fall for the “don’t wait too long” scare tactic have already bought by now and are the new bagholders watching the little equity they had vaporize in the daily headlines.
*yawn* – I’ll check back here in 6 months and see if Mr. Otteau was right. The market should be in the “red hot days of summer selling season” at that time.
– Cheers
# 2
Grim,
Another thing that hit me when looking at the article is that it also likely reflects the “heck, if I can get this price I will move” crowd, who are not particularly interested in selling but would if they made a killing on the property. If so, that should mean the among the remaining sellers there is a greater proportion whoi are looking to get out (for whatever reason) and should be motivated to deal, especially in light of declining prices and fewer qualified buyers.