Market update at glance october 2013

October 31st 2013

“Market Qualifiers”

One  theme that I always carry with me about the real estate market or the economy in general is the qualifier to any analysis I do is “ unless our friends in Washington D.C. do something stupid all bets are off” we have now been through a period where I believe the comment applies in spades. So why are the actions or more appropriately inactions of our friends a concern here in paradise where we live? First when people get nervous or are unsure what is occurring they hesitate or hold back.   In single family permits we see the third year over year monthly decrease (permits down 16% from October 2012,  total single family permits still have a gain of 19% for the year, as a comparison in march 2013 permits were up 66% year over year. The increase in residential unit sales are up 9% year over year, as a comparison in march 2013 unit sales were up 16% year over year. Both the single family new construction and single family resale are showing the decreasing of the increase of velocity in the market place. Market time has decrease of 19% year over year, as a comparison in March 2013 market time was 21% lower year over year.  The absorption rate shows an increase of 7% in time year over year, as a comparison in March 2013 absorption time was down 35% year over year.  Pending sales are negative  -10% year over year,  as a comparison in march 2013 pending sales were up 7% year over year. All This showing the market velocity is a decreasing year over year; which is somewhat as I expected due to a surge last fall with an accelerating decrease in interest rates. Overall, I believe, in the long term, these trends are positive within the market. The reason for its positive effect is the increase in unit sales becomes a sustainable momentum and not a setup for a bad stumble. The other positive from the market behaving in this manner is that the movement of prices up becomes a more solid base to build appreciation on. The market has experienced a 7.65% approximate pricing movement since the end of 2012 and about 8% year over year, confidence in the economy of Yellowstone County means the price gains are becoming solid. The major factors in the market place are interest rates and employment; interest rates have started to move upward. According to Freddie Mac, September 2012 average interest rate of 3.38% and through October 2013 the rate is 4.16% for a 30 year fixed rate, to show the impact of that increase, the payment on the average priced house in September of 2012 was $1,219 PITI at the end of October 2013 is now $1,457 PITI.  When talking about interest rates loan qualifications are also a player in the market, the additional scrutiny caused by the problems of liar loans has most probably reduced the buyer pool by about 15%, how else do you explain lower unit sales than 2006 with higher employment and lower costs to own in Yellowstone County.  As interest rates move upward and prices move upward these twin trends will moderate sales and pricing trends. The caveat would be employment, strong employment can drive sales. Since our friends closed shop i do not have any figures available other than figures of August 2013, there 612 more people working in Yellowstone County than in August of 2012 and 2529 more working than in August of 2011. The number of persons employed is at historical highs. Yellowstone County unemployment is now 3.9% compared to 4.8% State Wide. Pricing trends continue a positive trend, albeit at a slower pace, with interest rates higher than last year, total monthly payment has risen above the previous year again, ending the trend of rising prices with lower monthly payments. Yet the monthly payment has a way to go to match 2007, with the average sales price home monthly PITI was $1,602 in 2007, compared to today’s average sales price home PITI of $1,457. Another fact of the market place, to purchase the Average priced home in October 2012 your payment was $200 a month more than renting the Average home for rent, in September 2013 it now costs $345 more in monthly payment to own, as compared to renting the Average  rental home  in Yellowstone County. This bodes well for the cash flows from rental properties as the cost of ownership goes up rents will follow the upward trend by a few months. As a side note an update on oil drilling comparing this year to date and last year, year to date in Montana the rig count has dropped from 20 to 11 rigs and in our neighboring state North Dakota, rig count has dropped from 190 to 174. Hope you find the information both useful and enlightening, if you have any questions about either buying, selling or the market in general do not hesitate to call or email