Housing Market - Do You Recognize The Bottom ...

Buyers, sellers and many observers on the sidelines are trying to figure out where is the bottom of the housing market.  News outlets report new single family home construction starts rose 2.8% to 368,000 in April, after rising slightly in March as well.  In addition, micro-markets are seeing a reduction of inventory in certain price points as buyers come out for the summer selling season.  Meanwhile, during the same period other new residential construction (apartments, condos, etc.) suffered a decline of almost 46% - the reasons cited were falling rents and tight financing.  In the meantime, everyone seems to be tracking foreclosures which is deceiving due to the national moratorium commencing in the 4th quarter through the end of the 1st quarter of 2009.  

This stream of information is like watching an intense match point volley in a closely contested tournament.  Is the market up, down, false bottom or - well just wait a second and a pundit will serve up a new volley by "spinning" a statistic coupled with a compelling rationalization.  One can debate the relevance of the discussion; but we will leave that for another blog.  

If you really want to know the status of your market and if a bottom is near you may need to consider other factors.  Instead of looking at the national market or even the regional market, buyers and sellers should track their micro-markets looking at the historic and current trending patterns.  Find out current prices for comparable properties, trend historic highs and lows over the past five to seven years (real estate typically runs in seven year cycles).  In addition, track inventory levels in your markets - determine total number of homes on the market, pending sales and the absorption trends.   High inventories (as compared to historic norms) of comparable properties and slow absorption rates signify pricing issues given demand.  Market pricing may still trend downward regardless of the national economy.  Low inventory levels or high absorption rates suggest higher demand and price stability or price increases on the horizon.

For example in Long Beach you can look at a micro-market, i.e., Bixby Knolls, and see different supply and demand forces at work.  Foreclosures at the lower end of the market (ranging from low 200K to mid-400K) typically have several offers each trying to outbid each other.  It is not uncommon in this market niche to witness closed sales prices above original list prices.  Yet in the same micro-market the 500K and up price point, the market is almost completely dormant.  A few would rationalize that financing in this market segment is more difficult to obtain.  If you believe the Feds, then this should not be the case because Fannie and Freddie have upper loan limits around the $720K range.  But financing (interest rates, terms and underwriting requirements) is significantly more difficult to secure in the upper loan limits.  Therefore, you see greater price fluctuation and a general market softness - sellers willing to take less for significantly more.

What is your local marketing doing?  I'm interested in hearing from you - be your own economist.  Let me know.