Photo by Chris Bernard Courtesy of Creativecommons.org
That’s the magic question.
Wouldn’t it be nice to know when the stock market was about to rebound? Most of us would probably buy, buy, buy and watch the values rise as others say I should have purchased at those rock bottom prices! The problem here is that we never know when we hit bottom until it is often to late. Only after values rise for some time, can we then pinpoint the “bottom.”
So what indicators can we look to in an attempt to predict the “bottom”? For starters, you need to realize that real estate is a local commodity. Different areas have varying trends. Once you pinpoint a “local’ market, I suggest taking a look at the monthly listing to sale ratio. If the ratio is moving downward…in other words sales in comparison to new inventory is falling, the market is likely still moving downward. Each month there is a growing total inventory and therefore buyers can be more selective. Prices may fall as the more motivated sellers settle for less. However, if the ratio is rising this is an indication that monthly rollover inventory is depleting. Less choices for buyers will likely lead to appreciation in values. As my high school economics teacher Mr. McMacken (West Catholic ’89) would say…as supply diminishes and demand increases, prices will rise.
Here is an interesting fact about the Philadelphia listing to sale ratio. It has been on the rise each month in 2008 as reported in Trend, our local Multiple Listing Service. In January 2008, 2835 residential homes were placed on the market for sale. That same month there were 869 sales for a 30.6% listing to sale ratio. In June 2008 there were 2545 residential homes placed on the market compared to 1226 sales – a 48.2% listing to sale ratio. Now since the ratio is still below 100% there are carryover listings. But you can clearly see the increase. This is why many real estate investors are buying now in Philadelphia. They anticipate increases in value and have data to support a turnaround.
I believe that Philadelphia’s “bottom” was the first quarter of 2008. Buy now and enjoy the bargains before you look back and wish you did! Below are the actual numbers as reported in Trend. Happy Investing!
Month Units Sold Units Listed Ratio
June 1225 2545 48.2%
May 1195 2506 47.7%
April 1128 2994 37.6%
March 1055 2821 37.4%
Feb 880 2484 35.4%
Jan 869 2835 30.6%
4 responses so far ↓
1 Mike Galdi // Jul 19, 2008 at 9:29 am
The one thing I love about statistics are they are a great barameter of information. Lets speak reality, I once voiced an opinion over 6 months ago, that the real estate prices would have to fall over 20% for the buyers in our market to return and entice first time buyers to buy instead of rent. Our expert scoffed at this opinion and here we are 7 months later, prices have somewhat stabilized and the homes that sell are reduced by 15-20% from 1-2 years ago. The only fact is , in my opinion, that when our buyers can afford some sections of our market that are livable and survivable, they will return in droves, unfortunately, the sellers aren’t prepared just yet for the bite
2 Bill Lublin // Jul 20, 2008 at 2:14 am
Just for the sake of accuracy, according to the market data provided by Trend MLS, prices in our market area have seen less than a 4% reducation since 2006. The number of sales have reduced, but prices have held pretty strong.
Perhaps Mr. Galdi’s earlier comment refers to people who were asking unrealistic amounts, and now need to readjust their asking price, as opposed to an actual reduction in the prices the houses have been selling for.
In fact, in a recent survey prepared by MGIC, a large national mortgage insurer, the risk of loss in value in Philadelphia was less then 2% in the coming two years, making it one of the ten most stable prices in the US.
3 Mike Galdi // Jul 20, 2008 at 2:49 pm
The realization of the stable prices that Mr. Lublin speaks is true statistically wise. My comment refers to the direct market of some parts of our area of which our first time buyers have problems qualifying for the home buying process. Some sellers have not yet readjusted their prices thereby eliminating the low to modest income buyers from actually affording the payments of today, thereby leaving an inventory of homes that can not be afforded. In my opinion, unless the prices adjust another 10% in some areas of our market they may remain on the market. If things remain the same , then nothing will change. I have the highest regard for Mr. Lublin’s opinions
4 Bill Lublin // Jul 21, 2008 at 2:22 am
Mike makes a great point. Sellers need to know what their buyers will pay for the specific house they’re selling.
And that’s why someone like Mike needs to be there to provide input on the pricing. In a market where consumer confidence is shakier then we would like, experience like Mike’s helps a seller find the place where the house can be sold in a reasonable period of timem for a realistic price.