Schuler Bauer Real Estate Services

Bad Real Estate Market? ENOUGH ALREADY!!

Over the past year or so, we have been inundated with news reports that the real estate market is in the tank.  Yes, the bubble has burst, the sky is falling, and those who dare to voluntarily make a move are destined to spend eternity in hell for being so reckless.  Combined with the recent news about the mortgage industry, you’d have to believe that a giant, flaming meteor is on a collision course with downtown Sellersburg.

 

 

 

The biggest issue facing the real estate market today is fear.  A motivational speaker once explained fear to me as False Evidence Appearing Real.  Most often, fear is not based in reality, but in our perception of reality.  We hear things, accept them as fact, and draw conclusions.  Indeed, perception becomes reality.  In this article, I want to address a number of these perceptions and share with you what is really happening in our Southern Indiana Real Estate Market.

 

 

A common perception is that home sales are down.  This morning (August 31, 2007), I researched our Southern Indiana MLS to determine the number of home sales from January 1 – August 30, 2005 verses the same time period in 2006 and 2007; a year-to-date snapshot of where we are compared to this same time the past two years.  In 2005, there were 2,301 home sales through August 30. In 2006, the number was 2,438 (5.4% increase). In 2007, the number is 2,439.  The truth is home sales are not down.  At worst, sales are flat.  When you consider 2006 was the third best year ever nationally for home sales, we are doing quite well as a Southern Indiana real estate market.

 

 

Another perception is that properties are taking longer to sell. Two factors contribute to this.  First, the number of properties entering the market for sale (inventory), and second, the price at which those properties are offered.  In 2005, there were 5,516 new listings entered into the MLS.  In 2006, there were 6,194 (10.9% increase).  In 2007, the number is 6,201.  The perceived “slowdown” actually resulted from what happened in between 2005 and 2006.  During that time, the percentage increase in new listings versus sales was roughly double (supply in excess of demand).  The result, a glut of inventory.

 

 

This is where price plays such an important role.  For fourteen consecutive years, our market grew in relative equilibrium, resulting in steady (though relatively modest) price appreciation.  When the level of available inventory exceeded the demand, the market created a downward pressure on price, something we were in no way used to in Southern Indiana.  In 2005, the average days on market (DOM) was approximately 108 days.  In 2006, DOM averaged 102 days.  In 2007, the number is 105 days.  These averages represent the time period from January 1 through August 30.  These averages are also only based on properties that actually sold.  Our MLS tracks listings by assigning a listing number, not by property address.  These DOM averages do not account for expired listings or for sale by owner properties.  What these averages do reflect is the average amount of time properties took to sell when they were priced where the market was willing pay.  The perception that it takes longer for properties to sell is not accurate.  What is actually happening? It is taking longer for sellers to get their properties priced right based on greater competition in the marketplace.


Many people would like to move into a newly constructed home, but are concerned about getting their current house sold.  From May 1 – July 31, 2007, existing (resale) homes accounted for 83.4% of total sales.  Of total sales, 65.7% sold below $150,000 (84.7% sold below $200,000).  If someone were to try to determine what segment(s) of the market are “hot,” it would definitely be resale homes under $200,000 (especially under $150,000).  So, if someone currently owed a home that falls into this category, and wanted to buy new construction, what they have to sell is exactly what the market wants to buy at this time.

 

 

Twice a year, Steve Hines, Director of Schuler Bauer’s Builders Marketing Service, does an in-depth analysis of the new construction market in Clark, Floyd, Harrison and Scott Counties. (https://www.schulerbauer.com/developments/semi_annual_analysis.pdf).   In Clark and Floyd Counties, Steve uncovered an interesting fact.  In the first half of 2006, the average new construction home sold contained 1,598 square feet.  In the first half of 2007, the number was 1,597 square feet, virtually no change.  By contrast, however, the $ per square foot cost of new construction homes sold  in the first half of 2006 was $104.63 per square foot.  In the first half of 2007, the number was $92.53 per square foot, a decrease of almost 11.6%!

 

 

What does this mean?  If a person wanted to sell an existing home, the demand is red hot.  If the same person wanted to purchase a new construction home, it’s actually more affordable this year than last.  Granted, we’ve heard stories about trouble in the mortgage industry.  What you might not have heard is that mortgage rates actually tracked down this week!  Let’s see, it should be a good time to get my house sold if I price it right; my new house will cost me less now than if I’d moved last year (and probably less than if I wait until next year); and the cost of mortgage interest just went down.  Sounds more like an opportunity to me.

 

 

The Southern Indiana Real Estate market is not bad.  It’s different that what we are accustomed to, but far from what you might perceive.  In fact (if you believe in facts), it’s one of the best times in recent history to move into a new construction home.

 

 

My greatest fear is that while we are all waiting for Armageddon, we might just be missing the real estate Rapture!

 

MATT WILLIAMS
COO, Schuler Bauer Real Estate Services

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