market update september 2012

Market at a glance September 2012

We are now three quarters through the year and the good numbers continue to roll through the housing market here in Yellowstone Count, Inventory lower by 26%, pending sales up by 26%, closed sales up by 19%, new home permits up 81% all outstanding performance for the residential market. The driver for most of this outstanding performance comes from three things interest rate and jobs and population growth.   First let’s talk about interest rates, the Federal Reserve through their “operation twist”, selling short term bonds and buying mortgages and a new commitment to buy 40 billion of mortgages a month and is now buying about two thirds of all new mortgages in the United States, has managed to drive interest rates to historical lows, 15.6% below 2011 and 44.4% below where they were in 2008. From to August 2011 to this august we added 1747 payroll jobs and population has increased approximately 1450 people. Lots of positives in the economy.

Yet with all these positives, pricing structure has only changed by 2.5% to 3% year over year when you take size and price into the actual formulation. Thus when all the positives are taken into consideration, on first blush, that would seem a more than modest price increase.  So the question becomes why, a question I have asked before. I believe that the underlying reason is the same, caution on both the buyers and sellers within the market place. Yes sellers do want the highest price that they can achieve yet, they do want to sell, so while you might assume sellers interest are not aligned with the buyer at this point in the market place the assumption is most probably wrong. Just as you reverse the process and look from the buyer’s side and assume that the lowest value would be most wanted yet with a lower inventory being able to purchase the home and location wanted becomes more paramount. So with interest rates favorable buyers will move some in pricing of purchase yet not as much as positives would lead us to believe. As always it’s fascinating to me to watch the market and how it operates with all the different forces involved. This year has been a stunning example of how it responds