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 More of the same would be one way to describe what we have seen in the real estate market in Morgan Hill for February of 2007.
All the big indicators we usually track have headed more or less on the same course that we have plotted over the last 6 months. Inventory is up compared to the same time last year. The number of new listings is about the same and sales are actually a bit higher. However, not by nearly enough to make a dent in the huge inventory of homes currently on the market.
So lets take a look at the numbers for Morgan Hill. As usual, we will start with the supply and demand statistics.
Supply And Demand
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First, lets take a look at the numbers for the month of February going back to 1998. By looking at the numbers just for the same month of each year, we can look past seasonal influences and focus on how the market has been doing at the same time of year, each year.
As we have seen in previous months, we are again setting records for the number of homes currently for sale in Morgan Hill. In fact, inventory is up 34.9% from this time last year. A stunning increase, particularly when you consider that sales, while up a bit from last year, are still at levels far below what we have seen going back to 2003 and are nowhere near being able to cope with the overwhelming number of homes on the market.
Over the last three years, the number of new homes added to the overall inventory has been flat, but since fewer homes are selling each month, this has resulted in an accumulation of homes that bloats the inventory.
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When we look at the same numbers for the last year or so, we can see that there has been inventory fluctuation in Morgan Hill inventory, but that these relate more to seasonal influences than anything else. In fact, what we see is that the usually robust summer season did not have nearly the sales that we would expect during that time. This will become more obvious as we compare the summer months of 2007 with the same months in previous years. For now, the important message to take away from these numbers is that if we see the kinds of changes this year that we did last year, inventory is likely to only increase from here until after Aug 2007. With the current public perception that property values are likely to decline, concerns in the lending industry about tightening lending standards and the already ongoing shortage of buyers - this year is likely to be the pivot point for our market.
As the inventory increases, and sellers find themselves having to do more and more to attract the attention of buyers, we may yet see sellers starting to be forced to lower their asking prices.
Home Prices
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It looks as if the assertions I have made in the past about this market slowing rather than crashing are being supported by the latest data. Home prices continued their increase this month, but only by 1.1%.
I believe that this shows a relatively mild slowdown in values instead of the market ending crash that so many seem determined to anticipate. The latest problems with subprime loans may push things down a bit more drastically, but I don't believe that even that can cause the "crash" that some predict.
Again, I suspect we are at a pivot point in the market. This summer is when when we are going to see how this plays out. If the sellers out there that have been trying to get their homes sold don't see a new wave of buyers this season to get some of these homes off the market, I believe that for those that have to sell, we will finally see sellers asking and taking less for their homes. This process may turn out to be gradual as well. In fact, we may see property values flatten for an extended period of time rather than drop significantly. The bottom line is that there is no real reason for buyers to get excited in a market where from a month to month standpoint, it makes more sense to rent than to buy. We have relatively high rental vacancy rates right now which is keeping rents down to the point that it can be as much as 70% cheaper to pay rent than to pay a mortgage. When we were seeing large numbers of buyers, rents were on par with what a mortgage would cost. With this huge imbalance, the market needs to make it attractive for renters to become buyers.
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If we look at home prices over the last year or so, we can see that there has been some fluctuation. Of course, seasonal influences play a part in this, but the over trend is one of flattening. Some of the numbers are interesting to point out. Such as, from Jan 2007 to Feb 2007, the average price of a home dropped by 15.3%. That is a pretty big drop from just one month to the next. We can see tho that January was an unusually high average price month. If we look at the change from December 2006 to February 2007, the change is average price is actually only 0.4%. So when taken on the whole, a relatively flat season.
Days To Sell
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The trend of sellers having to wait longer and longer to get their homes sold continues. In fact, this year we see a pretty dramatic increase in this number. While it has been increasing since 2004, we see that from 2006 to 2007, the average number of days it is taking to sell a home in Morgan Hill has increased by 30.3%.
The average home is now selling in 86 days. Keep in mind that this is closely linked to asking price. The higher the asking price, the longer it is usually taking for a home to sell. Within each price bracket, only the most aggressively priced homes are selling in shorter times. So for instance, if you are shopping in a neighborhood where the average price of a home is over 1 million dollars and a home in that area comes up for just under 1 million, that home tends to sell quicker.
Another element is how well the home shows. If your a buyer and you have your choice of a dozen homes in the area you want, your clearly going to go with the property that you believe gives you the most for your money.
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Now here is were we actually see a bit of good news. We saw the days to sell drop to the same level it was back in November of 2006. However, this often occurs during this time of year since so many homes are taken off the market during the christmas holiday and so many sellers wait to put their home on the market till after the holiday. The net result is that there just tend to be more "new" homes on the market in January - even if they are home that were only taken off the market for a couple of months.
So, I am not comfortable as labeling this a sign of things to come just yet. What we need to do is see what happens in the coming months. I suspect we will see this number continue to increase, with a dip in April or May (similar to what we saw last year). I would also suspect that this summer season will be more lackluster than we might hope and that we will see this number continue to rise through the "hot" season.
Conclusions
- The market for homes in Morgan Hill continues down the same path that we have been anticipating over the last 6 months.
- Home sale numbers for Morgan Hill have not moved substantially in either direction.
- The subprime situation is likely to effect the ability of some buyers to get financing, this is likely to result in fewer buyers this year. With buyers already being in short supply, inventory is likely to continue its growth.
- I continue to think that this will be the pivotal year for real estate and home buyers and sellers in Morgan Hill. Things have relatively flattened out in the area of average home price and the other market forces are now going to push everything one direction or another.
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