Summary:
The March results reflected a continuing trend of contraction, most notably in the absorption rates for the overall market and particularly for the western suburbs. As of month-end, the overall absorption rate stood at just under 18 months down 39% year over year and the best showing since June of 2008. Things got even tighter in the western suburbs comprised of municipalities from New Castle to Parachute where the absorption rate as of March month-end was just under 13 months, the best rate since August of 2008 and a decline of 50% year over year. While those numbers are encouraging, the year over year decline in total inventory is likely a function of discouraged sellers pulling their homes off of the market, rather than attempting to compete with distress and short sales that are contributing significantly to the increased sales activity and driving down prices.
Nonetheless, there were 96 sales transactions for the month, an increase of 43% year over year and the highest transaction count for any month since August of 2008. Consider for a moment that the average number of transactions in 2011Q1 is 71 units. In all of 2010, only one month of activity exceeded that amount and that occurred in December.
Statistically, the market bottomed out in January of 2009 with a list to sale ratio of nearly 9 new listings for every sale and an absorption rate of over 73 months. Contrast that with the results of the most recent month at 2:1 listings per sale and an absorption rate of 18 months. The progress has been consistent and undeniable. So why all the continued doom and gloom? In a word: Price.
There continues to be an excessive amount of inventory on the market. With 1,726 available units as of March month-end (down 13% year over year) and many of these representing distress situations where sellers are forced to liquidate, buyers are in a position to cherry pick the best of the best in terms of value. And they’re doing exactly that. While this has an adverse affect on prices, it does serve to absorb inventory, a necessary component to eventual stability and recovery. For reasons already mentioned, there will continue to be a steady supply of homes to choose from. Until the distress, foreclosure and short sales run their course as they eventually will, prices will continue to be suppressed. Provided that buyer activity continues to increase as it has steadily since the anemic 22 units in January of 2009, at some point (I don’t pretend to know when), the distress sales will be replaced by market driven transactions where buyers will be required to meet the price expectations of sellers motivated by things other than desperation. Watch for monthly transaction counts to consistently exceed 100 units as an indication of this transition phase of the recovery and the period where market balance begins to be restored. During this phase, an increasing number of buyers begin competing with one another and opportunities for the best available values might well have already passed.
Joe Carpenter
Vice President
Special Assets Banker
American National Bank
429 Railroad Avenue
Rifle, CO 81650
(970) 625-2895
Joe.Carpenter@anbbank.com
The opinions expressed are strictly those of the author. The information and opinions provided are not to be construed as investment advice and no representations or warranties are made as to the accuracy or reliability of information provided.