Declining markets

[Julie Black]

I was wondering what the actual definition of a declining market would be. This particular subdivision of townhouses has 39 listings, of which 3 are bank owned and 8 are foreclosures and 45 homes sold in the past 365 days. Values had declined since 2005, but is this considered to be stable? Also, homes sold for 95% of original list price for average DOM of 77.

 

[Ken B]

I was wondering what the actual definition of a declining market would be. This particular subdivision of townhouses has 39 listings, of which 3 are bank owned and 8 are foreclosures and 45 homes sold in the past 365 days. Values had declined since 2005, but is this considered to be stable? Also, homes sold for 95% of original list price for average DOM of 77.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0711.pdf

 

[Hamlet]

Hi Julie,

It looks like you have an oversupply combined with REOs that are brining your market down. Look at the listings and see how often they were reduced in price and how long they’ve been on the market. Also look at those withdrawn listings too. They can be revealing and many times you will find the same home listed more than once. You might also want to break your 12 months of sales down by quarter to see what the market was doing and if you have any seasonal effects to the market. Look also at the mean, median and modes for sales price, DOM, square feet, price per sf, etc. Look for any patterns. If you are handy with Excel and have enough data you can create scatter graphs to help you see the big picture.

Good luck.

 

[JonGalt]

Hi Julie,

It looks like you have an oversupply combined with REOs that are brining your market down. Look at the listings and see how often they were reduced in price and how long they’ve been on the market. Also look at those withdrawn listings too. They can be revealing and many times you will find the same home listed more than once. You might also want to break your 12 months of sales down by quarter to see what the market was doing and if you have any seasonal effects to the market. Look also at the mean, median and modes for sales price, DOM, square feet, price per sf, etc. Look for any patterns. If you are handy with Excel and have enough data you can create scatter graphs to help you see the big picture.

Good luck.

Also, if you're lucky you may find a sale from the previous year that has sold again this year , maybe it is listed for less than it sold for the previous year, or has been listed for less than the previous sale and cancelled. Analysing the market these days takes research and time, my remaining clients also expect me to explain my reasons for marking it declining/stable/increasing.

If you search back to through older posts there were several good ones about this topic in the past months.

 

[agedaprsr]

Area Changing

You have to look at everything that was mentioned by the other appraisers. It could be your market has been through the worse and is currently reaching and/or has reached a stabilized market. In a lot of areas the prices dropped to a certain point and then stabilized.

If current listings are being listed and sold in a three to six month period and are selling for 5% less than list price, with the exception of the foreclosures, that market could be stabilized. Are all the foreclosures sold ? Are prices still declining ? If all the newer listings are selling at similar prices within the same short marketing period you could conceivably say you have a stable market in that project. But you have to take into consideration the general market area......... other areas may not have faired so well !

 

[andyrew42]

45 that's a lot of sales. Try working with 7 sales in a market in the past 6 months in a declining market. Can you say dissertation?

Generally the way to properly identify a declining market is to compare average sales prices from point A to B, A to C, A to D, A to E, A to F and A to G in a from 6 to 5 month ago period, 6 to 4 month ago period, 6 to 3 month ago period, 6 to 2, 6 to 1 and 6 to today. If the overall average sales price in that market continues to decline even as the pool is getting bigger in adding the next month of sales into each average, than you have yourself a declining market.

To further prove the declining market underwriters ask us to apply the overall average of decline in the market per month as a percentage based on how long ago the comparable sold (i.e. let's say the overall decline in 6 months is 9%, that's 1.5% average a month of decline, the comp sold 3 months ago for 500k, 500k x 1.5% = $7500, $7500 x those 3 months ago = $22,500, your time adjustment for that comp is -$22,500).

They also ask to provide a few pending sales or comparable listings. When applying comparable listings we are asked to take the overall sales price to listing price ratio of the comparable sales we used and apply that percentage to the listing price to arrive at a negative adjustment for "probable negotiations." If the average sales price to listing price ratio of the 3 comparable sales is 95%, and the listing price of the comparable listing is 525k, than the adjustment is 5% of 525k or -$26,250 or -$26,000 rounded.

These are some of the ways that declining markets are justified and accounted for. God I hope it turns around soon because doing all this extra work per report for no extra charge sure is fun!

 

[NC Old Guy]

SP/LP ratio. Just make sure you know which list price you are using, the last one or the first one (including the likely multiple MLS #s it is under). Likely to get a very different answer.

 

[andyrew42]

Ohhhhh use the listing number and the most recent listing price? No way! Uhhhh I assume that much is obvious?

You did not just post that did you...