Looking Out From the Garage

Image by lane.bailey via Flickr

I have been kind of expecting this, but of course it will take a couple of months to confirm…

The Tax Credit did not kick the Gwinnett Market into gear…

Instead, its expiration killed sales.  Looking over the last few months of sales we see that for 2010, sales were (compared to 2009):

• January – down 10.9%
• February – up 1.7%
• March – up 10.1%
• April – up 14.1%
• May – up 17.3%
• June – down 0.8%
• July – down 26.2%

As we look over these numbers, there are a few things to keep in mind…  To start with, the July numbers will likely get a little better.  Although sales are supposed to be reported within 48 hours of closing, there are always stragglers that take a few weeks to make it into the reports.  Contracts had to be written by April 30th, and sales here usually only take 30-45 days to close.  That would be why sales were up in May, but not in June… those sales were likely closed.  I didn’t see a lot of buyers playing chicken with the contract dates.

All isn’t doom and gloom…  Inventories are down a bit from last year.  This is helping to keep the absorption rates at a reasonable level.  But they are still decelerating.

Look for specific reports over the next couple of weeks for Lilburn, Lawrenceville, Duluth, Suwanee, Sugar Hill, Buford and Norcross.

The real estate market for Gwinnett County is in a state of flux.  There are wide variations between different location throughout the county, as well as different price strata.  There are a few themes that are readily apparent, but some locations and price ranges are standouts (good or bad)... 

Some quick county-wide numbers... 

• January, 2010 sales were 352 homes.  This is down 11.1% from the 396 homes in January, 2009,  That was down 14.7% from the 464 homes in January,2008.  (There might still be some stragglers that haven't been entered yet... but there shouldn't be many.  These numbers are as of 2/23/10)
• New listings were 1526 homes for January, 2010.  This is down 21.9% (1953 new listings) from January, 2009.  That was down 17.3% (2363 new listings) from January 2008.  
• Days on Market were down by 19 days to 87.  This is good news, but I honestly don't put much faith in the DoM number. 
  

Overall Absorption Rates...

Take a look at this post for a quick explanation of Absorption Rates.  Listings increased for January, compared to December, 2009.  There were 5612 listings in January, 5219 listings in December.  The "Months of Inventory" numbers for the 12 month, 6 month and 3 month averages are 10.12, 8.80 and 8.68, respectively. 

What this means is that sales seem to be slowing.  However, January is generally a tough month.  In December, contracts usually slow, although closings remain fairly high (November contracts).  So, January always looks a little weaker in the 6 month and 3 month averages.  But, January also showed more months of inventory in the 12 month average, compared to December (8.03 months of inventory). 

It seems like I say it every month, but next month will be interesting...  One of the reasons we have to "kick the can down the road" is that we are only really able to look in a rear view mirror at sales data.  Imagine trying to drive around a track only looking out the back window.  Whenever there is a sharp turn, you won't know until you are in the ditch... 

Under $200,000...

This range continues to be the strongest, but it is weaker than it was last month.  However, the sales season doesn't really pick up until March (February contracts).  There were 251 sales in this price range, with just under 3100 listings (3089).  In the last year, sales peaked at around 540 in both June and July, and then came back up to 532 for October.  They slid to 414 in December.  In January of 2009, there were 270 single family homes sold. 

$200,000 to $400,000...

We certainly don't have the strength here of the lower range, but it isn't terrible.  Looking at the 3 month average, there is about 13 1/2 months of inventory.  There were 93 sales with 1861 listings.  Last year there were 103 sales in this price range.  The same pattern held for sales (strongest in July, then June and October).  As with the under $200k range, the tax credits seemed to push sales in the fall.  As with the under $200k, I expect that some sales were cannabalized from this spring by the first tax credit. 

$400,000 to $600,000...

Here is where we see the car drive off the cliff.  The 3 month average points to having almost 29 months of inventory on the market.  There were only 4 sales in this range for January 2010 (20 sales in January 2009) and 359 homes on the market.  May and November were the strongest months for sales.  I think we are seeing nervousness about jobs and taxes here.  There are few first time home buyers that would meet the criteria for the tax credit here, and the $6500 credit wouldn't figure prominently in the plans of buyers at this level. 

$600,000 to $800,000...

Things are actually slightly better in this range than in the $400k-$600k range.  There is still 27 months of inventory, but there were 3 sales this year compared to just 1 for the same month last year.  There were 127 properties on the market.  In this range, just a few extra sales one way or the other can have a dramatic effect on the statistics.  I also don't believe the tax credits have had much affect here. 

$800,000 to $1,000,000...

The three month average points to just over 3 years of inventory at this price range.  With 51 homes on the market, there was only 1 sale in this range in January... none in January 2009.  In fact, there have only been around 25 sales in the last year, county-wide.  And, while 6-7 months of inventory is considered balanced in the lower price ranges, because of the smaller pool here, we usually see higher numbers... but 3 years is still obviously slow. 

Over $1,000,000...

Nothing to see here...  There are 125 listings and there were no sales last month at this price.  There were 2 for the same month the previous year.  The three month average yield a little over 6 years of inventory.  There were only 42 sales in this range in the last 12 months.  And I don't think I've seen the Absorption Rate go much below 4-5 years of inventory... 

Hot and Not...

• Norcross is hot.  Just 5.1 months of inventory in the under $200k range...  And only 9 months of inventory in the $1M+ range!
• Duluth has just 6.3 months of inventory for the $400k-$600k range... 
  
• Lilburn is lagging right now, with 10 months of inventory for the under $200k level... and while there have just 6 months of inventory for the $600k-$800k range, there have onyl been two sales in that range in the last 3 months (only 4 listings). 
  
• Duluth isn't doing so hot for the other price ranges. 
  
• Lawrenceville, Buford and Lilburn are the big laggards in the $200k-$400k range at 17, 19 and 19 months of inventory, respectively.  
• Overall, Buford is the weakest of the markets I track, at just under 13 months of inventory. 
  

The markets I closely track are Buford, Duluth, Lawrenceville, Lilburn, Norcross, Sugar Hill and Suwanee.  for these areas, I am tracking them by mailing address, not city limits.  Buford, Duluth and Suwanee also include sales from counties other than Gwinnett.  I also track the overall numbers for Gwinnett County. 

I am excited about the growth prospects for Gwinnett County, GA.  In the last few weeks we have had another announcement of a company moving their headquarters to Gwinnett.  We have a wonderful quality of life, and there are abundant recreation opportunities...  The Gwinnett Braves and Gladiators, Lake Lanier, one of the best parks departments in the country and proximity to all that metro Atlanta has to offer make this a GREAT place to live and work.  I've been proud to call Gwinnett County home for most of the last 21 years.

I needed to run some numbers today from just 4+ car garage homes.  The numbers were pretty interesting.

So, if you are paying attention, you might notice a lot of mixed signals.  But, what I am seeing is that while the Single Family Residential numbers overall are currently pointing to about 104 Days on Market, everything under $500k is WAY under 104 Days on Market.  This shows me that some sellers are hitting prices that are getting buyers off the fence.  I am also seeing that the inventory is shrinking for everything over $500k compared to sales.  So, there is still a good way to go, but the deals are going away... fast.  

It time for me to make my prognostications for the coming market, while recapping that which has happened. Please keep in mind that even on the 18^th of September, the numbers for August WILL change.  I will come back and correct them before posting the October results.  I originally posted the June number on July 10^th, and they had changed pretty significantly by August 6^th when I reviewed and corrected them.

The numbers for August, even this late in the month don’t look like they can be complete.  If the numbers hold up, the market took a dramatic down-turn in August.  I think that as we approach the end of the month, the numbers will correct (I have seen this for a while now).

Prices are pointing up, but I don’t think that will continue.  I think we need to see a drop in prices to spur buyers into action.  I don’t expect that to be much, but a modest decrease of maybe 2%.  Currently we are up 5% vs. last year.  June was up 5%, and July up 2%.  This might also be partly a function of some of the new home sales on the higher end of the market.  I would really like to see this flatten a little, as I think it would spur a little more buying.

Time on the market is also trending up vs. last year.  We are up to 95 days.  That is almost 4 weeks (25 days) more than this time last year.  Last month was 80 days on market, but that was also 10 days more than July 2006.  May sales were the lowest this year at 76 days on the market.  In fact, May was the lowest since last October (2006) when the DoM was 72 days.

By now, I think anyone in the housing market has heard of the Sub-prime Mortgage Meltdown.  It is still a big player on the market.  Buyers that were marginal even six months ago are out of the market now.  Buyers that are solid are still solid.  If anything, those buyers are in a stronger position.  Since there are fewer buyers, they have increased strength with sellers.  Furthermore, I’m starting to see lenders trying to court those strong buyers.  Face it, mortgage lenders make money by loaning money.  They can only stop writing for so long before they need to look at making money again.  Obviously the marginal buyers aren’t popular with the secondary market, so getting “A paper” mortgages back into the stream will become more of an imperative… and so I expect to see rates slide a little for the best buyers.

The current mortgage climate is tough.  For buyers with weak credit history, the market is almost closed.  Alt A loans (stated income, no documentation) will be away from the market for the foreseeable future, except for the rarest of good credit buyers.  And expect that 0% down and even 3% down loans will be reserved for those with better credit.

I think it is getting to be time to say that smart investors need to get back in the market.  Buy & Hold strategies will be heavily rewarded in the long run.  Prices are good, rates are kicking for those with good credit.  There might be a slight easing of prices in the coming months, but I wouldn’t count on it, and we won’t know that we’ve hit bottom until we are off of it.

Finally, remember that we can only get an accurate look in the rear-view mirror.  We will only KNOW there has been a change in the market when we see it has already changed.  We’ll know that change has taken place when we see all of the best deals are already gone. 

Gwinnett County sales comparison for residential real estate. 6/07

Here is a look at the residential real estate market for Gwinnett County for the last two years as well as looking at overall trends that will affect investors and “move-up” buyers in the next few months. 

Looking at the numbers up through June of 2007, there are a couple of trends that seem to be materializing.  New listings are up year to date (YTD) about 13% over last year.  May and June are up 11% and 9% respectively over the same period last year.  The trend seems to be new listings returning to previous levels.  At the same time, sold listings are down 20% YTD.  In May and June, the sold listings are down 25% and 28% respectively.  This trend is moving down, but I think that the June number is an anomaly (it was an anomoly, and I corrected it when the new numbers came out).  Another number I use is the percentage of “solds” leaving the market vs. new listings coming in to the market for a given month.  This number is dropping pretty hard against last year.  The YTD comparison puts it down by a third (40% vs. 58%).  The last four months are down 36%, 34%, 38% and 40%.  

So, we know that sales are down versus last year.  However, prices have not yet followed suit.  Prices for Gwinnett County are up 4% YTD v. last year.  June was even up 5% in price against the same period last year, but I think that is also an anomaly.  Time on the market, however, is up about 15 days comparing YTD numbers against last year. 

Finally, looking at outside influences, I feel that there is a high likelihood that there will be an increase in foreclosure properties over the next few months.  I think this increase will be more pronounced on the middle and higher end of the market.  Many of these properties were financed with ARMs that were tied to volatile indexes such as the LIBOR.  Owners may be faced with substantial increases in the housing costs leading to foreclosure.  There has been a lot of activity in the market over the last couple of years, and so there are a lot of recent properties that could become troubled. 

The first thing to keep in mind is that this ISN’T an overheated market like Southern California or Boston.  There hasn’t been the huge run up in values in the last several years.  In fact, the run up in many areas has barely kept pace with the increase in material costs to build a new house.  Land has run up in many parts of the county as developers work to squeeze more homes into desirable areas.  I think that infill has picked up as well.  “Infill” is when builders tear out older homes and build one or more higher priced homes on the land. 

What does this all mean?  I think there are two distinct paths that will emerge in the coming months.  The first path is in the entry and second step homes.  I think that prices have largely stabilized.  These homes don’t really have the room to move down, so at this time there are good deals available.  The best deals are on “fixer-upper” homes in this range.  These homes are stalled and sellers have to use price to make them sell.  Foreclosures will start to get more attractive if the lenders start to get realistic about the prices.  I see many of these homes priced well above comparable homes plus needed renovation (even with free labor).  Until the prices on these properties drop down low enough to allow rehabilitation, these properties won’t sell in any significant number.  There are some that are selling, but not to experienced investors or “flippers”.  A good example is a home selling at $175k in a subdivision that should net $185k - $200k.  The property needed around $20k in renovations to bring it up to area standards, not including most labor.  A possible $5k profit is not sufficient for an investor to consider the property.  That limits its market to investor/occupants.  As the number of foreclosed properties increases, these limited buyers will dry up. 

The second distinct path is for the higher priced properties.  I see more profitable opportunities as prices move past $350k.  There are many fewer players in this area, and more properties showing up.  This means that investors with deeper pockets or partnerships may be able to move up in the market and reap larger profits.  An example of this is a property that I know of priced at $420k.  It needs about $150k in renovation (including labor) to bring it to a standard that should allow a $700-$750k price.  After carrying costs, there will be a profit of $100k-$200k.  However, this will take a buyer with more substantial finances to exploit.  The biggest danger in this realm is “under-furnishing” the property.  The serious buyer of the renovated home will expect appropriate materials and finishes.  If the investor tries to skimp on the details in one of these properties, they will not maximize the profit for the house.  

Keep in mind that we look at these numbers in the rear view mirror.  What that means is that we will know the market has turned when we see that it has already turned.  We won’t know WHEN it will turn before it happens.

Feel free to email me for further info.  I keep a pretty detailed spreadsheet with the statistics from FMLS that I use for these calculations.  

>>Edited 8/6/07 to correct numbers for late in June.  The MLS numbers changed from early July<<