Decline in price but increase in demand.

[moh malekpour]

I just appraised a home in an area that I knew very well and expected the price decline because the zip code was not an area you expect to hold its price. It was not close to ocean and was the area in which low income people bought high price homes by using sub prime and teaser rates. Although, I never rely on my own instinct and I always search the market to make sure that I have the data to back up for what I write but this time my data surprised me and made to think hard when I wanted to check mark on demand/supply on page 1 of URAR form.
My search showed that the price was declined 30% from last year at this time but the number of sold homes was increased about 25%. When I looked at those sales data, I found out that about 80% of them were REO or short sales with significant price reductions. My search also showed that most current listings are REO or short sales and there are some REOs that are not listed yet and may be added to current listings. However, due to those increased sold homes, the current inventory was not as heavy as it used to be one or two months ago. The inventory used to be at least for 12 months and now it was for 7 months.
After thinking hard about the current supply/demand in market, I still check marked over supply and made a comment regarding the recent stride in the demand. It seems that there were some homebuyers who were not able to buy few years ago in the boom times or they sold their homes at that time and waited for prices to come down and now have decided to buy if the prices were right and since the prices were what they wanted , they have made their moves. By looking at the prices that they paid and the type of listings that they made offers on, it shows that they all were looking for a deal and they got them.
I always make a comment in may market analysis that if the home is priced and marketed correctly, it will sell within 1-4 months. The extend of marketing is not going to help if the price is not correct.

 

[Mike Boyd]

A very astute observation, Moh. It is similar at the upper end of the state, as well, and I think it will continue for at least one more year, perhaps longer.

 

[TJSum]

It could be the first sign that prices are close to bottoming out. During the sharp drop in values, there was very little demand because prices had not dropped far enough to reach market clearing prices. You might be seeing that now, but with the vast oversupply that had been built up, it will take some more time for supply and demand to level off followed by prices stabilizing.

However, it could be just that time of year, the spring market in many areas typically sees the greatest activity.

 

[NC Old Guy]

To be a contrarian however, consider the possibility that those that were waiting for a "bargain" are no longer in the market because they have now purchased. Who is going to be buying those still on the market, coming on to the market? More "bargain" hunters that were waiting for an even lower price? Maybe they have bought a bargain, maybe they bought at an intermediate plateau with another drop dead ahead.

Reminds me of a comment a realtor sent to me why we did not have a declining market. It went something like--There is nothing wrong with the value of the houses. Its only because buyers have withdrawn from the market because they can't get the money to buy the homes.

 

[Charles Knutson]

Very good analysis -- within a given neighborhood, a particular market sector can maintain value stability (or stabilize after a decline) while other market segments continue to decline (or increase) in value.

I've described this as market stratification -- in some areas, REO prices continue to decline, while homes in top of the market condition hold their value. Some homebuyers have no interest in distressed properties, and unless REOs totally overwhelm demand, the top of the market can remain stable while the bottom of the market falls out. Conversely, after prices have fallen sufficiently, the bottom of the market can stabilize while the top continues to decline. It sounds like that might be the case with your subject property neighborhood.

I did a report on a duplex last week, in a neighborhood that has seen a substantial decline since 2006. I did an SFR report in there last month, and the values were still falling -- with a large inventory of unsold REOs. But on the multi family side, the solds and active listings were in balance, and the latest REO sale was at the recent top of the market value. I ultimately decided that the multifamily income property sector had stabilized, although the SFR market was still declining.

 

[panappr]

Describing to much, or to little?

Moh, I've approached my assignments lately in areas that are experiencing a heavy decline and as you described as being hit hard with foreclosures and short sales, referencing DQ News (zip charts) to describe the decline in the greater area. First showing an annual rate through 2007, and now being able to analyze the first quarter rate of decline on a monthly basis to describe the BIG PICTURE, with median sales prices and number of sales vs the same month a year ago (which BTW, I've noticed most of the decline in February, reflected in March closings). I do this before I get into describing the more immediate demand area, in which I am noting the number of active NODs filed vs the existing REOs in inventory through numerous sources (ie RealQuest, etc.). I think this adequately captures the current state of the Subject's market. In determining the absorption rate, and marketing periods through MLS, I'm also noticing a larger number of pending sales now vs active listings in recent assignments, which is good meaning that current pricing levels are stabilizing since much of this inventory has been on the market over 90 days and is now after several price reductions is beginning to be move. My template for "Current Market Conditions" has forced me to look at several different factors.

But I'm just curious, if this is to much information??? I have reviewed and have looked at several appraisals, over the course of this "declining market", where the appraisers are just checking "declining" on the front page, with a canned (for the most part) statement (in the 3 lines provided) noting that "sales have slowed showing a decrease in property values", which maybe true, however, is this adequate?? I have yet to find one where the appraiser has actually reconciled his/her determination with actual data or even provided an absorption rate????. I'm starting to question my own reporting practices???

 

[Jungle Boy]

I agree with your heading Moh, an increase in demand does not necessarily mean a shortage, or even a balance in supply/demand.
At the same time there could be a huge oversupply of properties on the market.

We've seen similar conditions in some areas. Huge decreases in prices, and increased sales. However, at the same time there's a year + of inventory.

 

[Nevermind 3]

Moh, I've approached my assignments lately in areas that are experiencing a heavy decline and as you described as being hit hard with foreclosures and short sales, referencing DQ News (zip charts) to describe the decline in the greater area. First showing an annual rate through 2007, and now being able to analyze the first quarter rate of decline on a monthly basis to describe the BIG PICTURE, with median sales prices and number of sales vs the same month a year ago (which BTW, I've noticed most of the decline in February, reflected in March closings). I do this before I get into describing the more immediate demand area, in which I am noting the number of active NODs filed vs the existing REOs in inventory through numerous sources (ie RealQuest, etc.). I think this adequately captures the current state of the Subject's market. In determining the absorption rate, and marketing periods through MLS, I'm also noticing a larger number of pending sales now vs active listings in recent assignments, which is good meaning that current pricing levels are stabilizing since much of this inventory has been on the market over 90 days and is now after several price reductions is beginning to be move. My template for "Current Market Conditions" has forced me to look at several different factors.

But I'm just curious, if this is to much information??? I have reviewed and have looked at several appraisals, over the course of this "declining market", where the appraisers are just checking "declining" on the front page, with a canned (for the most part) statement (in the 3 lines provided) noting that "sales have slowed showing a decrease in property values", which maybe true, however, is this adequate?? I have yet to find one where the appraiser has actually reconciled his/her determination with actual data or even provided an absorption rate????. I'm starting to question my own reporting practices???

Pan,

I don't call that too much information, I call it properly and competently doing your job. Most of the form jockeys you have reviewed, sound like they aren't fully doing their job. I am now doing a full quarter by quarter market analysis, on every appraisal, based on local MLS data and subject general market area. I don't like to rely on dqnews for alot of areas.

I pull MLS data, within general market area, for each quarter, going back 15 months/5 quarters, then have it graphed in excel to show the trend line. I use median sales prices, median days on market, and # of sales per quarter, to analyze the Subject market and formulate my comments. So, I don't think you are doing too much, you are just doing a professional job.

You are getting your NOD info from realquest? I just cancelled my RQ account due to the exorbident cost and readily available public record data from many local MLS sites now. Any ideas where else the NOD info would be available?

BUt, be careful about assuming prices are stablizing. We have ALOT more resets of adjustable loans happening as we speak and throughout most of this year, which most likley will result in alot more REO's and inventory. We are not over yet, by a long shot. We have more happenings on the way, especially for California.

 

[Ken Youngkrantz]

Nevermind....I believe you can get the nod information from Fidelity National Title Company.

 

[Blueprint]

To be a contrarian however, consider the possibility that those that were waiting for a "bargain" are no longer in the market because they have now purchased. Who is going to be buying those still on the market, coming on to the market? More "bargain" hunters that were waiting for an even lower price? Maybe they have bought a bargain, maybe they bought at an intermediate plateau with another drop dead ahead.

Reminds me of a comment a realtor sent to me why we did not have a declining market. It went something like--There is nothing wrong with the value of the houses. Its only because buyers have withdrawn from the market because they can't get the money to buy the homes.

Surely there are those "bargain perception" style buyers while prices are still decreasing. In this market though, to think there are not more bargain style hunters still waiting for prices to continue to drop is ridiculous. The masses wanting to buy, will end up buying late. They will end up buying once they perceive the markets as stabilized and or maybe increasing slightly as a result of perception. It is all perception.