I am sure we will dwell on this issue from time to time for a few years to come. Where do we go from here?

Inventory is softening for the summer which is our usual trend. Sales are in the mid 500's for the past month which puts us at or just under 2000 levels of sales. New inventory is our major competitor for resales. homes from $300K-$600K are competing with new home communities that are dumping inventory to raise cash and reduce debit. They are offering such discounts that resales are suffering from what we call the "Slinky Effect"         

You remember the Slinky from your youth? You start it on the top of an incline and step by step it release the energy generated from coil to expansion and works it way down the steps.

Robert Hooke identified this principle in 1678, on the basis of his experiments with springs, stretching wires, and coils, stated a rule between extension and force.This led to Hooke's law which states that strain, the relative change in dimension, is proportional to stress. If the stress applied to a body goes beyond a certain value known as the elastic limit, the body does not return to its original state once the stress is removed. Hooke's law applies only in the region below the elastic limit.

That is exactly the way our market is behaving. The changes happening in our market are proportional to the stress applied to it. A seller in xyz development has to sell, he prices it below the competition and accepts an offer less than everyone else, the slinky just went down one step. Investors with 3 properites that have to sell, the bank has accepted a short sell and the bank is willing to take less than what is owed. Ching, the slinky just went down another step. Our under $250,000 inventory is growing at 15%-20% per month as homes fall into the just sell it category.

Other inventory price ranges are staying fairly consistent overall. With this type of data it is hard to see any relief in the near future. Builders are still dumping inventory meaning they are not purchasing land. Land prices continue to drop which eludes that the basement for first homes has not been reached. Many investors and builders have been dumping lots or not exercising options. I've seen builders offering on your lot homes for, get this, $119,000 including lot prep! Names you would recognize.

With the statistics for sales and inventory currently in front of us it is hard to see relief or any flattening of the market in the short term. The pipeline of new inventory still looks to be 1.5 years away from selling out. I see many developments with concrete block showing where they have just started building so those with development orders in had have not yet pulled back. I know one such development off of Challenger has just closed down. Be careful of purchases in upstart communities as they may not finish in the promised time frame. 

These are all ramblings of what I see coming with the future but buyers and sellers need to know and need realtors willing to express the truth to clients. We are very positive on our region, our state and our market  but for the short term, 1.5-3 yeras we see much of the same and continued downward pricing pressure.

Michael Polly, Vice President, Denny Grimes & Company