The housing market is in a state of flux so we spent added time this month helping you understand the numbers and our local Belmont market:
(Click on the report for a size you can read)
Understanding the Belmont’s October 2008 housing market takes a lot more than listening to the numbers being bantered about without insight or analysis. Read on, as we’ll tell you what these indicators mean and how to put them into perspective. We rate each indicator with an arrow depending on its effect relative to increasing home values from a homeowner's perspective. From a buyer's perspective these indicators would all be reversed. In other words, if inventory levels are growing we would rate that with a down arrow since it would put pressure on lower prices—bad for sellers but good for buyers. Here we explain each indicator: MEDIAN SIZE HOME SOLD: This gets a down arrow because the median size home INCREASED in 2008 yet the median home price dropped. If this is taken into consideration the true median home price in October would be $807,639—a 27% year-over-year drop. AVERAGE LOT SIZE: This gets a plus arrow since it accounts for SOME of the discrepancy in the median price from 2007-2008. That’s because while the median home sold in 2008 was larger, the lots were smaller and while the lot size does not have as great an impact on the median price as the home size itself, one must account for this to help explain some of the change in median prices. It’s interesting to note for example that in 2008 none of the high priced homes which sold were in the more sought after area after referred to as “Hallmark”, or more accurately Belmont Woods, while in 2007 four of the 15 sales were in this area—no doubt accounting for some of higher home sale prices. MEDIAN PRICE This is of course the mother of all data point often reported by media organizations. Not to beat a dead horse, but without more explanation this number alone could really throw you for a loop. Yes the median home price is down significantly for 2007 but one needs to remember that back in 2007 this number was an anomaly and we discounted it back then as such. The problem is that the median size home that sold this October is dramatically larger than back in 2007 which flies in the face of what the numbers are telling us unless there’s been a substantial decrease in median home values—which undoubtedly there has been—just not to the degree the numbers may be hinting at. One reason has already been mentioned—the fact that no homes in the tony Hallmark are were included in October’s 2008 sales data. These homes have larger lots—many level—sidewalks, underground utilities and a highly rated elementary school. All factors that are hard to quantify in terms of real dollars, but certainly could explain why the price per square foot in 2007 was $563--$50 more than in 2008. SALES Sales were virtually unchanged—one more this year than last. However, given consumer confidence, which is at its lowest point in its 23 year history at 38.0, this is a great sign since despite consumer worries the pace of homes sales as remained steady. In fact Belmont’s inventory of homes for sale has dropped in recent weeks; though some of the lower inventory is attributable to the fact that in the last two weeks NO NEW LISTINGS have come on the market—a first as far back as we can remember! From the Consumer Confidence web site: “The Conference Board Consumer Confidence Index™, which had improved moderately in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September. The Present Situation Index decreased to 41.9 from 61.1 last month. The Expectations Index declined to 35.5 from 61.5 in September. “The Consumer Confidence Survey™ is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. The cutoff date for October's preliminary results was October 21st.” DAYS ON THE MARKET This stat tells us how long it takes to sell a home. At first glance it appears to have dropped by a few days this year which would be a sign that homes are selling faster. Further analysis reveals that the Total Days on Market (also referred to as the continuous days on the market) has actually increased. What can account for this? Simply put, more agents are playing the game of re-listing a home that has been sitting on the market too long. That resets the Days on Market stat which consumers see but not the CDOM stat that agents are privy too. Don’t worry, your agent must disclose the real CDOM if you are making an offer. HOMES SOLD OVER/UNDER ASKING More homes sold over asking this year than last October but that isn’t important if prices are lower. This could just mean that more agents are pricing homes lower intentionally in order to bring more attention and get homes sold in multiple offers (yes multiple offers are still happening on well priced properties). What’s important to note here is that homes which sold over the asking price sold for half of the amount over in 2008 as they did in 2007; and homes that sold under the asking price sold for twice as much less in 2008 as compared to 2007. That’s definitely a sign a weaker market. NUMBER/AVERAGE REDUCTIONS This number provides us with little insight this month as these two periods are virtually unchanged. It’s nevertheless a good sign that they haven’t increased significantly at all. PERCENT RECEIVED OF ASKING This number can also be misleading if homes are selling for significantly less, but closer to the asking price—this number could actually be higher in a down market. All it would take is for sellers to list their homes decidedly lower than market value, get multiple offers and create an environment where the homes sell over the asking price, yet lower in real dollars. If you’ve gotten this far good for you. These are just some of the variables we take into consideration when analyzing our local market. So what does all this mean for home values in Belmont? We expect prices to decrease year over year into 2009. On what magnitude? Probably not much since Belmont is insulated rather nicely on the Peninsula with no room for real growth and a relatively short supply of homes. Of course the impact of the current recession (yes we believe we are in a recession) and its affect on jobs will be a determining factor for inventory levels—if homeowners are forced to sell due to job relocation or losses and the market is flooded with homes for sale, with few new home buyer prospects prices could drop precipitously—in the neighborhood of 15%. Absent those dire conditions we expect a tamer drop of 6-8% through the third quarter of 2009. The next several years may remain flat in terms of appreciation has trepidatious buyers reluctantly return to the home buying market. Other extraneous factors such as the cost of money could have a huge bearing on prices as well. Homeowner affordability is a key factor in bringing buyers into the market and while lower prices mean more buyers can afford homes, any increase in interest rates could easily wipe out the savings of lower home prices and forestall any market rebound. This information is for entertainment purposes only and includes no legal, accounting or real estate advice nor is this intended to be specific to your situation-always consult a specialist who is familiar with the details of your situation. Data retreived from the multiple listing service--ProLIstings, San Mateo County First the overall picture:
Excellent question and I’m sure many people are puzzled by the same observation. First, the median price in Belmont is very susceptible to wild fluctuations due to the relatively small number of homes that trade hands each month. We’ve seen $200,000 swings from one month to another and it’s always due to smaller or larger homes selling in a particular month.
But to your question as to why the median is dropping with multiple offers, the answer is that while the true median price in Belmont has undoubtedly gone down, if a seller prices their home right there are still enough buyers looking to drive the price back up to the market threshold. Simply put, the supply is greater than the demand but there are still very few homes to choose from relative to the number of people who would like to live in the Bay Area. Are they “nuts” for offering more than asking? Only if they offer too much. It’s the old bidders fool rule where the winning bidder by definition paid more than anyone else was willing to pay. Did they pay too much? That must be looked at on a case-by-case basis but the short answer is sometimes they still get a good deal. Put more succinctly, if you found a home listed for $100,000 in an area surrounded by homes selling for $500,000 and there were 75 bidders, would you pay more than asking? You’d have to in order to be the prevailing bid. But if the winning bid was $200,000 the stats would read they paid 100% over asking, still got a heck of a deal and the median price just dropped precipitously.
Posted by: Drew | November 12, 2008 at 06:50 PM
How come the median price is dropping and yet your weekly report shows homes selling over the asking price every so often. Are these people paying over asking nuts or what?
Posted by: Mike P. | November 12, 2008 at 06:14 PM