This is a perplexing market!
Since late 2005 the real estate market has seen declines in the number of homes sold, increases in homes on the market, and falling prices. This is completely logical. Lower demand and higher supply inevitably leads to lower prices.
The number of homes sold in 2006 is down 23% from last year, while there is currently a 13 month supply of homes on the market. This has lead to a drop in home prices, as evidenced by the drop in per square foot sold price since the end of 2005 (see Chart).
Despite all this, the average price of a home sold has increased slightly over 2005. In fact, the average price of a home sold in the area is up about 0.7% from last year. This is perplexing! The price of a home is dropping but the average price of a home being bought is increasing.
If the major problem in the New Hampshire housing market is that homes have become unaffordable and the prices of homes are falling due to lower demand then one would expect that the average price of a home sold would fall as well. Instead, the average price of a home sold has clearly increased. This is an indication that many buyers have the means to buy a home and are willing to spend that money to get the home they want. So as the prices of homes drop, buyers are simply buying more house for their dollar.
This is not to say that buying a home is easy for everyone. In southern New Hampshire a first +time home buyer faces difficulty in finding an affordable first home. They can expect to pay $230,000 or more for a single family home in the area. Even a condominium can cost $180,000, which may be difficult for the first time home buyer.
However, with a strong jobs market and increasing wages, buyers in the market are taking advantage of lower prices and low interest rates to buy the home they want. Today, buyers do not have to compromise on home size, location or amenities like they did when the market was hot. These indicators also highlight the fact that this market was not precipitated by a major economic event, such as major job losses, that prohibit people from buying. Therefore, this market will probably not last long. I do not expect a return to the red hot real estate market we had with 15% appreciation per year, but I do anticipate increases in buying with moderate appreciation. (Of course this assumes no changes in economic conditions that will impact buying power.)
As a closing note, I have noticed over the last few weeks that the news media has begun to run stories about the market hitting bottom. These stories are important to note because they will change buyers perception of the market. When buyers believe we have hit the bottom and prices will not fall further, they will begin to buy.
A complete report with charts and data can be found at www.SouheganHomes.com