Real Estate Market Update
A monthly market analysis capturing the observations and insights of the 8z Team
For the past few years, the relationship between the real estate market and the stock market has been a rocky one. The real estate market has been blamed, rightfully so, on a regular basis for dragging down the stock market along with the rest of the economy.
In August, that dynamic seems to have undergone a role reversal. It now appears that the stock market is dragging down the real estate market. Certainly the wild stock market gyrations that began in earnest in early August completely drowned out any good news from the real estate market as the first post tax credit data rolled in.
Which is too bad, because there was actually some good news in the real estate market, especially at the local level.
YTD Sales Volume for 2011 gained ground on 2010 Volume due to higher volume in July and may pass 2010 by year’s end
(Figures above in millions)
Months of inventory increased slightly due to a smaller number of closed transactions in July compared to June on a similar base of active listings
In fact, the post tax credit market that revealed itself was quite solid.
The volume of real estate sold in July across all Front Range markets was up 18% compared to last July. This is the first year over year increase since January.
On a month over month basis, the market slowed a bit, with a drop of 4.7% from June’s volume. Note- a midsummer dip in July is a common pattern in Colorado markets.
The supply of active listings increased slightly to 5.5 months in July from June’s 5.3 month supply reflecting a drop in closed transactions that outpaced a small decline in the number of active listings. The market remains below the 6 month level indicating relatively tight inventory.
In Boulder County, year over year sales volume was also up, increasing a healthy 28.7% over July 2010. Like the Front Range, Boulder County experienced a midsummer dip of 10.1% compared to June.
The supply of inventory in Boulder County was 6.9 months in July, consistent with June’s supply of 6.6 months.
Unfortunately, all this good news on the local real estate market front was completely lost in the noise of the stock market’s wild ride.
So what exactly is the connection between the equities markets and the stock market?
There is no question that the two markets are interrelated, but in ways that may not be completely obvious.
First off, the crashing stock market caused a flight to safety, and the yield on 10 year Treasury notes dropped to record lows. As a result, mortgage interest rates followed right along and dropped accordingly, with 30 year fixed rates approaching 4%. Low mortgage rates attract new home buyers who understand that changes in mortgage rates can have a bigger impact on their monthly payment than fluctuations in home prices.
While low mortgage rates may be good for the real estate market, the volatility of the stock market certainly is not. The connection here between the stock market and the real estate market is largely in the mind of the consumer, but it cannot be underestimated.
The reality is that very few home buyers rely on, or tap into, their stock portfolio to purchase a home. However, the psychological effect of going online to check out your stocks or your 401K balance, and seeing a 10% or 15% haircut to your net worth doesn’t exactly inspire confidence to go out and buy a home.
This is particularly true for potential buyers of luxury homes who often have a larger portion of their assets tied up in stocks. While some of these luxury buyers may react to a tanking stock market by shifting dollars from stocks to real estate and purchasing an investment property (not a bad idea with vacancy rates at record lows), most will simply hunker down and retreat to the sidelines.
As a result, the stock market gyrations of early August may be felt in September in the luxury home market, erasing the momentum that had started to build this summer. In fact, luxury home sales were up 38% year over year in July, but that may be prove to be just a blip if the stock market continues to slump.
Of course, the stock market is driven by national and international news and macro-economic trends, and is highly reactive on a daily, hourly, and minute by minute basis. Fortunately, the real estate market in Colorado is much less volatile and is based on longer term fundamentals like employment.
And believe it or not, there is some good news on the employment front in Colorado. The State’s unemployment rate was 8.5% in July, compared to 8.8% last July, and lower than the current national rate of 9.1%. It’s hard to get too excited about an unemployment rate that high, but the trend is positive.
As we enjoy the last days of summer and head into fall, 8z’s outlook for the real estate market is a continued balanced market in which relatively low inventory levels, coupled with higher year over year sales volumes, will keep home prices flat to moderately increasing. If the US economy enters a double dip recession, that forecast will require some revision. In either case, the 8z Team will keep you informed with the real story.
Inside Real Estate News by John Rebchook
A monthly conversation with John Rebchook, Editor of InsideRealEstateNews.com and former Editor of the Rocky Mountain News, and Lane Hornung, President of 8z Real Estate.
It’s a given that home buyers increasingly start the search for their home on the Internet.
The National Association of Realtors reports that 89 percent of house hunters start their search on the Internet – a trend that will only increase with the exponential growth of smart phones and other devices that offer instant access to the web.
And there is no shortage of information. A quick Google search on “Denver real estate” returned 125,000,000 hits; “Denver housing,” 35,260,000; “Denver homes,” 1,010,000.
With that kind of information-overload, those seeking a home increasingly will want – no, demand – Realtors who can separate the wheat from the chaff, according to Lane Hornung, president, CEO and co-founder of 8z Real Estate and COhomefinder.com.
John: Lane, what does all of this housing information being available at the finger-tips of consumers mean for Realtors now and in the future?
Lane: Consumers are not going to work with real estate professionals who do not take their jobs seriously. They’re going to have zero-tolerance for those agents who cannot or do not provide pertinent information in a timely manner, using the latest technology. Nor should they be.
John: Let’s say I live out-of-state and I’m planning to move to Boulder or Denver. Of course, I begin searching information about housing on the Internet. It’s not like the old days when the Realtor was the gatekeeper of all information that is real-estate related.
Lane: Absolutely that is true. The Internet provides a lot of education.
John: With so much information available on the web, do I need a Realtor?
Lane: That’s your call, but since the listings were placed online for the first time over a decade ago, the percentage of home buyers and sellers who use a Realtor has increased, not decreased. Consumers are seeking context and interpretation of all that data at their fingertips.
John: So, Lane, what will the information of the future look like that will provide real value to the consumer?
: There will be a huge explosion in online resources and hyper-local content. To blow our own horn, at 8z Real Estate, neighborhood information drives our Pulse web sites. Our Pulse sites have hyper-local information tailored for a neighborhood, like NewlandsPulse.com
John: Why is that important?
Lane: You have to get a feel for the “gestalt” of the neighborhood – what people are talking about, rather than just the information about the median income and median age of a homeowner.
John: Lane, how do you see this type of information evolving?
Lane: We’re going to be seeing more online forums for someone living in or moving to a neighborhood, where they can ask very specific questions of the people who live there. In other words, it’s not going to be one-way flow of information. It’s going to be a two-way street.
John: Again, with so many sources of information, does that make a Realtor obsolete?
Lane: If anything, with so much information available and flowing, the Realtor will be more important than ever. All of this information doesn’t eliminate the need for the Realtor. The Realtor needs to be there so the consumer can make an informed decision. A Realtor who specializes in, who lives and breathes a given neighborhood, who knows the history, the trends, the individual houses and their story, can provide invaluable knowledge to a home buyer or seller. They are a community asset, a market maker, and a repository of knowledge.
John: Thanks, Lane.
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– Data through May 2011, released today by S&P Indices for its S&P/CaseShiller Home Price Indices, the leading measure of U.S. home prices, showed a second consecutive month of increase in prices for the 10- and 20-City Composites. The 10- and 20-City Composites were up 1.1% and 1.0%, respectively, in May over April.
– Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.5 percent to a seasonally adjusted annual rate of 4.67 million in July from 4.84 million in June, but are 21.0 percent above the 3.86 million unit pace in July 2010, which was a cyclical low immediately following the expiration of the home buyer tax credit.
– The median existing single-family home price rose in 41 out of 151 metropolitan statistical areas (MSAs) in the second quarter from the same period in 2010, including four with double-digit increases; one was unchanged and 109 areas showed price declines. In the first quarter, 34 metro areas had posted gains from a year earlier.
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