Articles
The Road to Recovery
Published in the Bozeman Chronicle, December, 2006.
December is always a good and necessary time to reflect on the year that has passed and to look forward to a new year with anticipation. So, from a real estate perspective, we bring a close to a year where real estate news was at the forefront of every segment of economic reporting. Despite microscopic media attention, 2006 sales will historically rank as the 3 rd best year in units and sold volume. Simply put, real estate sales were at an unsustainable frenzy in many major markets in 2004 and 2005 and are now returning to more sustainable sales rates and appreciation levels.
A recent presentation given by David Lereah, Chief Economist for the National Association of Realtors, was entitled “The Road to Recovery” and gives many reasons why the housing market of 2007 will be one to watch.
There are signs of this recovery in many places. In addition to sales prices going back to a more reasonable level and sustainable pace, sellers seem to be showing more flexibility than during the unprecedented boom years. This brings many buyers who were either patiently waiting or just below the affordability margin back into the market. Additionally, homebuyer attitude and confidence have also improved. Coupled with the growing economy and new job creation, there are simply more households ready and able to purchase a home now. However, buyers also need to understand that the “buyer's market” will not last long due to the facts that job growth will also lead to increased housing demand, the sheer number of households is expected to increase by 15 million over the next 10 years, the abundance of inventory now will lead to fewer choices later, and there is more negotiating room now than there will be in the future.
Pending home sales which were descending steadily during 2006 have begun to stabilize recently and both new and existing housing inventory has just begun to fall – additional signs of recovery. Towards the end of the year, builders nationwide have drastically cut new home production which is a strong sign for inventory reduction.
One indicator often used in real estate to gauge the amount of inventory on the market is the months' supply or the absorption rate. This figure states the number of months it is expected to take to sell the current inventory on the market based on the number of actual sales in the previous 12 months. Nationwide, this number appears to have topped out for both new and existing homes which is yet another positive indicator that homes will not be sitting on the market for as long as they have been.
Finally, the number of mortgage applications has stabilized after showing large declines throughout late 2005 and 2006. Mortgage rates are still very reasonable and only modestly higher than they were last year.
Robyn Erlenbush is owner of ERA Landmark Real Estate (with offices in Bozeman, Big Sky, Livingston and Clyde Park) and Intermountain Property Management. She can be reached at robyn@eralandmark.com.