I was interviewed recently for a segment on ABC's Nightline about the ever-entertaining housing market. View it here.
Wednesday, September 30, 2009
Monday, September 28, 2009
The First Time Buyer Tax Credit Has Impacted Our Market!
The number of active listings is down 23% in the last year and down 35% in the last two years (source: Metrolist). There is a lot less inventory on the market to sell. As a result, the number of sales for the entire market is down. January through August of 2008 compared to the same period in 2009 saw a 18% drop in sales volume for the Denver market.
What’s happened with first time buyers (FTB)? Generally, they are buying homes under $200K. I’d also generalize and say that most of them focus on move-in ready homes. They generally are not as active in the distress sales (foreclosure and short sale) market. There are several reasons for this:
- Preference. Many FTB want a move-in ready property. They are moving from an apartment and are used to having everything in nice condition and working order.
- Cash. They may just barely have enough money for a 3% FHA down-payment, and won’t have cash left over for paint, carpet and appliances. Move-in ready condition is a requirement for many.
- Lending. Many FTB use FHA lending. Many of the distress properties on the market are in such rough condition they would not qualify for FHA.
- Competition. Even if the FTB wanted a distress property (many need work), they might not be able to compete. Listing agents for REO property tell us they are frequently getting multiple bids in the first few days for their listings. As a bank selling a property, if you get several all-cash offers from investors that can close in a week, and an offer from a FTB that is using an FHA loan that will take 45 days to close… which offer would you take? Many FTB have been forced out of this segment of the market.
Thus, if you want to get a sense of how FTB are impacting the market, I’d look at the trend of sold homes under $200K that are NOT distress sales.
Interestingly, while the overall market has had a 18% drop in sales volume, this segment (under $200K, non-distress sales) is up 7% in sales volume (Jan-Aug 2008 vs. Jan-Aug 2009). The competition is making homes in this segment sell faster than the overall market. The average days on market (DOM – time to get an offer) declined from 107 days (Jan-Aug 2008) to 86 (Jan-Aug 2009). In that same time, the overall Denver market DOM declined from 101 to 100.
Another way to see the impact of the first time buyer tax credit in this market is the average discount. For the homes under $200K, the average discount declined from 2.6% (Jan-Aug 2008 vs. Jan-Aug 2009) to 2.2%. For the homes over $200K, the average discount increased from 2.7% to 3.0%.
What’s happened with first time buyers (FTB)? Generally, they are buying homes under $200K. I’d also generalize and say that most of them focus on move-in ready homes. They generally are not as active in the distress sales (foreclosure and short sale) market. There are several reasons for this:
- Preference. Many FTB want a move-in ready property. They are moving from an apartment and are used to having everything in nice condition and working order.
- Cash. They may just barely have enough money for a 3% FHA down-payment, and won’t have cash left over for paint, carpet and appliances. Move-in ready condition is a requirement for many.
- Lending. Many FTB use FHA lending. Many of the distress properties on the market are in such rough condition they would not qualify for FHA.
- Competition. Even if the FTB wanted a distress property (many need work), they might not be able to compete. Listing agents for REO property tell us they are frequently getting multiple bids in the first few days for their listings. As a bank selling a property, if you get several all-cash offers from investors that can close in a week, and an offer from a FTB that is using an FHA loan that will take 45 days to close… which offer would you take? Many FTB have been forced out of this segment of the market.
Thus, if you want to get a sense of how FTB are impacting the market, I’d look at the trend of sold homes under $200K that are NOT distress sales.
Interestingly, while the overall market has had a 18% drop in sales volume, this segment (under $200K, non-distress sales) is up 7% in sales volume (Jan-Aug 2008 vs. Jan-Aug 2009). The competition is making homes in this segment sell faster than the overall market. The average days on market (DOM – time to get an offer) declined from 107 days (Jan-Aug 2008) to 86 (Jan-Aug 2009). In that same time, the overall Denver market DOM declined from 101 to 100.
Another way to see the impact of the first time buyer tax credit in this market is the average discount. For the homes under $200K, the average discount declined from 2.6% (Jan-Aug 2008 vs. Jan-Aug 2009) to 2.2%. For the homes over $200K, the average discount increased from 2.7% to 3.0%.
Tuesday, September 8, 2009
Are Buyers Still Getting Discounts When They Buy a House?
It depends on what sort of house they are purchasing. Non-distress sales are those being sold by traditional sellers. In the last few months, the average discount in the Denver metro area was 2.5% off the last asking price. In many cases, the seller had to have a number of price reductions before they finally attracted an offer. This discount has been relatively stable for about two years.
On the other hand, the distress sellers have had a really different experience. “Distress” includes short sales and bank sales. You can see that the average discount for these properties was about the same as non-distress properties for much of 2005, 2006, and 2007. Starting in the middle of 2008, the banks got a little more realistic on their pricing AND demand for these properties greatly increased. Some of this was due to first time buyers but we think most of the demand increase came from investors competing for small rental homes. You can see that the average discount on the distress properties has steadily declined ever since.
Interestingly, in July of 2009, the distress properties sold at a modest PREMIUM to asking price, not a discount. This trend continued into August. The competition at the low end of the market is red-hot; many homes are selling in just a few days and there are often bidding wars driving prices above the asking price.
Does the speed to sell the distress property impact the price paid? Yes! [insert chart: 09-0907 Discount trends - REO segments] The bank properties that sell in less than five days are clearly the most sought-after. The premium these homes sell for continues to increase over time. In August 2009, they sold, on average, for 10.7% above the asking price.
We’re expecting the intense competition to continue for at least a few more months as first time buyers race the clock to take advantage of the tax credit. Eventually we’ll probably see more bank inventory hit the market and then prices will ease a bit.
On the other hand, the distress sellers have had a really different experience. “Distress” includes short sales and bank sales. You can see that the average discount for these properties was about the same as non-distress properties for much of 2005, 2006, and 2007. Starting in the middle of 2008, the banks got a little more realistic on their pricing AND demand for these properties greatly increased. Some of this was due to first time buyers but we think most of the demand increase came from investors competing for small rental homes. You can see that the average discount on the distress properties has steadily declined ever since.
Interestingly, in July of 2009, the distress properties sold at a modest PREMIUM to asking price, not a discount. This trend continued into August. The competition at the low end of the market is red-hot; many homes are selling in just a few days and there are often bidding wars driving prices above the asking price.
Does the speed to sell the distress property impact the price paid? Yes! [insert chart: 09-0907 Discount trends - REO segments] The bank properties that sell in less than five days are clearly the most sought-after. The premium these homes sell for continues to increase over time. In August 2009, they sold, on average, for 10.7% above the asking price.
We’re expecting the intense competition to continue for at least a few more months as first time buyers race the clock to take advantage of the tax credit. Eventually we’ll probably see more bank inventory hit the market and then prices will ease a bit.
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