Discounts and shifts at the most affordable end of the market.
Part 1: How as inventory changed?
If you've been reading my posts lately, you know that since early this year the ultra-affordable end of local real estate has been:
a. red hot
b. scorching
c. hot! hot! hot!
d. all the above
It seems like all the first-time buyers who "prudently" postponed their purchase decision during the lean months of September 2008 through December 2011 inclusive, plus the wave of first-timers whose youth and/or income kept them out of the market until this year, plus our old friends the investors, are now feverishly looking for an affordable condo, preferably one with two bedrooms.
The result is a market the likes of which I don't think I've seen in fourteen years of selling homes. Small condos that last year would have garnered a tepid-to-indifferent response from buyers are now selling in a week or less with multiple offers, 25 to 30 not uncommon. One small townhome just sold in two days with multiple offers before it could be shown.
Suddenly this part of the market bears a closer look.
Let's check out two-bedroom condos in the San Jose Metropolitan Statistical Area, comprised of the cities of San Jose, Santa Clara and Sunnyvale and a serviceable stand-in for affordable Silicon Valley. First we'll compare the number of closed sales of each of the three main types of inventory in this price range.
What's surprising to me is that the level of normal sales has remained fairly steady since the foreclosure crisis hit the fan. The line would be even flatter if you take into account the large number of short sales entered as normal sales in 2008, when the short sale check box was a new (and for many agents, apparently challenging) feature of the MLS entry form. And here I'd thought that the plunging values of bank-owned and short sales had chased normal sellers out of the market by eroding their equity and, indeed, you'd think that if you were just sifting through MLS inventory rather than charting it. But it wasn't that normal sellers all but disappeared during the crisis. It was just that they were all but buried under an avalanche of distressed sellers.
What's also surprising is how dramatically bank-owned sales have tapered off, and not because no one is interested in buying bank-owned homes these days. Obviously there's some truth to the idea that initially banks were dumping their inventory on the market. If they were, they soon learned not to.
It's a bit challenging to interpret the sharp rise in closed short sales, not just in 2009 when the agent community had wrapped its collective mind around that new-fangled short sale box, but right through 2011. Were there more short sellers—it sure seemed that way—or did lenders become more willing to approve short sales? Some of both, from what I can see, but I think mostly the former. In 2008 you could avoid short sales like the strange new plague and exercise in futility they were. These days, if you're in this price range and not looking at short sales, you're not looking at homes.
The sharp drop-off in short and bank-owned sales this year is due in part, of course, to the fact that we're counting only two-thirds of a year, but that's only part of it. Let's project total sales for 2012, based on the current number of closed sales.
Projecting sales is a fairly dubious proposition, given the drop-off in inventory and (usually) demand late in the year, particularly after Thanksgiving, but we can say with some certainty that normal sales will almost certainly show an uptick this year. It also appears that short and bank-owned sales have fallen off sharply.
Would that be yet another sign that the market has recovered? Yes, it would.
In two weeks, part 2: price trends.