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High Inventory and Low Sales: Which Goes First...the Chicken or the Egg????

The Chicken AND the Egg

It has occurred to me as I have been doing my year end market reports and reading so many others on ActiveRain that I could learn a lot about how my Lake Norman housing market is going to progress this year IF ONLY I could get some true insight from those of you who have hit your bottom and have pretty healthy absorption rates.

From Florida to Michigan to California I am reading fascinating year end reports that are showing some real signs of improvement while my area sales have dropped 50%.

My Lake Norman real estate downturn was very late to the party. We saw a slight drop in sales starting in March of 2007 but weren't truly starting to feel real pain until 2008. Here is our problem:

Our inventories are still very high even though they are down from almost 1800 to 1400.
Our sales are very very low
Our absorption rates remain in the 23-34 months of supply on hand!
Average prices have only dropped about 5%

As I look to 2009 I keep wondering HOW are we going to GET THE ABSORPTION RATES DOWN to 8 months of supply? How are we going to get our inventory down and our sales up? I am guessing we are going to have to see some serious price reductions BEFORE we see an increase in sales significant enough to impact our months of supply of active listings. But we aren't seeing nearly enough as we should.

Am I right? I think the answers are here on ActiveRain. Those of you who were hit first and are crawling out can help those of us who are behind you.

What happened first in your market? How did you get your inventories down and your sales stabilized? How did you get prices down to the point where buyers felt confident enough to get off of the fence?

Posted by Lake Norman Real Estate ~ Diane Aurit on 01/05/2009 04:45 PM

Comments (38)

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38 Comments on High Inventory and Low Sales: Which Goes First...the Chicken or the Egg????

JAN

2009

We had price reductions too and along with price reductions, foreclosures and short sales came home owners with negative equity.

That is a bottleneck for home owners.

I'll do some absorption rates and get back to you. I haven't looked at it for a while. Didn't want to.

Diane, those absorption rates are incredible and will take quite a bit of time to work off that much inventory.

We have had a huge number of price reductions, and saw great numbers of closings in DEC of 08. January is now again lined up to be quiet.... too much inventory still.

Good question. I'll keep monitoring comments to hear the insights gained from areas that are coming out their slump.

Diane, I would be interested to hear when your absorption rates decline. Seems like you are going to HAVE to see more price decreases to increase affordability for your area. What do you think?

Rumor has it that in Denver, we have a 6 month inventory (in many segments of the market, not all of course), which is considered "stable." I suppose this is good news, but I can't say I've seen any positive fall-out from it - my phone is ringing a bit more, but I attribute that to the end of the Dead Season (August - December) that we have every year.

I tell ya, though... I've said before and I'll keep saying it - I blame US (the REaltor community) for much of the high inventory problem. The vast majority of listings are overpriced and underpresented - my "real" buyers, try as they might, can't find anything to fall in love with!

Jennifer's comment is so true. I too blame the Realtor for lack of professionalism in pricing a home and marketing homes for sale that are extremely overpriced.

Great comments...I will be back tomorrow morning to respond!

We're still hurting here in southeast Michigan, but from the listing side it's all in the pricing. I've done CMA's that had houses on the market for 2-4 years, but with very few exceptions almost all that sold sold within 2 months of achieving their final asking price. Sellers have to be priced like the foreclosures and short sales. THEY ARE the competition. If 5 similar houses sold in the past 2 months and there are 40 on the market the seller has to be one of the 5 cheapest homes. If they don't price where I tell them they need to be, they will probably be worth less in 2 or 3 months than I originally told them.

Diane, get post. We are blessed here December was a good month and the year has started out good.

Diane~

Congratulations on your FEATURED Post! It contains a thought-provoking picture of the real estate market and how "influentia" seems to affect all of us.

Diane, Do not get wrapped around those " Absorption " rates. Focus on getting price decreases to stand apart from the crowd ( crowded market ). Explain to your sellers that the market going forward will not be pretty and those who wait will find themselves still owning the home and the market still falling away from them. Hope your 2009 is the best ever !

Diane, I always look at the absorption rates, it is good information for sellers so there expectations realistic. I think it helps a lot. Of course there are homes that are over priced and those that are not but it shows how many are out there that they are competing with.

Looks like all of us are in the slow down party. Some just came a little later than others. I am hopeful the we might come out first since we started the party and have been here from the beginning.

Great question Diane. Unfortunately, I can't answer it as our market hasn't quite turned around yet. Sales were very, very low for '08 in my market area. I believe lower rates and below market (really below) listing prices will bring buyers back to the table.

Diane,

The key is affordability to the consumer. So, people need jobs, money and the ability to borrow. If you can ride that out, you'll be fine, otherwise you need to have a "fire sale". But, that doesn't mean all the units. Take half off the market. I appreciate that's a liitle bit difficult with builder's inventory, however, you need to match up the supply and the demand.

Brian Madigan

Personally I don't like absorption rates - I mean, I do look at the numbers but I find them negative (it's a long story...) Having said that, there are many areas especially here in Douglas County - south of Denver where the numbers are low. And especially in some price ranges. We were and are seeing less homes come on the market, some homes are withdrawn and the ones that need to sell - end up (some eventually) pricing the homes so they will sell. Not many short sales or foreclosures here either, but I feel there is a wave coming... There are still buyers buying. This has seemed to reduce inventory in some of the areas/price ranges. I also look at number on a very hyper local level and there are certainly fluctuations. ~Rita

Our inventory has declined some, and sales have picked up, but our values are down 15% over last year. We have 14 months' inventory. We definitely have overpriced homes that need to come off the market.

Diane, you are soooo cute! I love the egg. Now, my community is so sluggish it's pathetic. Nothing to write about. Happy New Year! Deb

Does that happen when the market hits "bottom"? When the prices go so low that an increase in sales occurs? I am guessing that is how it will work...

Diane, The absorption rate in my market is 41 weeks - double from where we were last year. We are presently in our peak season and people are buying.

Diane, I don't know as much about this as I should but found the post and comments interesting. Oh, and you might want to remove that spam on thiw wonderful post...shame on them!

Hi Diane! First of all, congratulations on that little gold star! Great, HOT topic that needs to be seriously addressed in our area. I have been telling my Sellers that their mission is to BEAT the market significantly. Regardless of the absorption rates, which are in favor of the buyers, the sellers that beat those in their market, will be among the first to sell so the market absorption trends won't really affect them. I tell them that they MUST realize that they're not going to get those 2005-2006 appreciation rates with their SELL but, they WILL realize a 'deal' with their buy--where ever that might be! Most are pretty receptive to that approach.

I'm with you though, we're at the tail end of this economic downfall and I'm sure that this "bottleneck" as Lenn called it, is going to tighten up a bit before it opens up! How long it's going to take is the question!

Debe in Charlotte

Diane: Great post here. Our over all number have been down compaired to normal, but thankfully our market has still done well.

Diana my market situation is similar, and I think more price reduction is in order to get the inventory down.

I think for us short sales and REOs took over and started bringing down other prices and that got buyers to start moving. Though many still are on the fence, many have started to buy.

JAN

2009

I think once prices get back to 2004/2005 levels, our market will change. But at the moment, I don't think much will change immediately no matter what we do. I'll let you know next year what it takes...

Lenn: Thanks for your thoughts. I think our prices are going to have to come down, I just don't know how much. What has confused me is how little they have come down overall and why? Is it the agents not explaining the market to them or are the sellers still expecting a better market just around the corner?

Gary: Yes they are very high!

George: So price reductions have increase sales but you are still overstocked?

Scott: I totally agree...we need to see price reductions but I don't know how low. Will it take foreclosures and bargains to establish new price levels and then the reductions will be forced?

Jennifer: That's intersting that you have't seen great improvement even though your inventory levels are lower. I do agree, if agents had understood we were going down in mid-2007 and priced listings accordingly we would be in much better shape. I am amazed that sellers are willing to have their homes on the market for months with NO showings and not feel they need to lower the price significantly. In these cases my guess it that their agents aren't explaining the market to them!

Kathy: I agree as well!

Is Lake Norman a vacation area? 'Just asking because the name suggests it. If so, it may be one of the last places to "come back"... The Crofton real estate market, where I work, is very insulated from all this because of its proximity to the Federal Government and, in particular, the "BRAC Factor" which brings a steady stream of relocating buyers to us.

Diane - it's an interesting question. Saw your question about this on my post on our year-end market data. Our absoprtion has remained under 14 months and even less in my service area for some time, despite the drop off in sales, drop in prices, etc. I am not convinced we are at bottom, certainly not in some communities where there are many distres sales. The good news is that the volume of sales ini those areas has gone way up as prices come down. The inventory is down from last year in most communities as well so we may be reaching a point of stabilization.

The thing that sellers need to realize is that even though absorption may be reasonable low, there are mnay homes that are sitting on the market for extended periods. If not priced well, their homes will be one of these, rather than one that sells within the "absorption" period.

Jeff

Jackie: GREAT comment! We are just now getting comps from Foreclosures and distresses sales so I think that will help agent to price homes properly from the beginning. I like that: one of the 5 cheapest homes. Thanks!

Marie: Good for you!

janeAnne: Is your market any better than ours?

Bill: Thanks for your feedback. Yes, I agree it is all related to pricing but I wanted to hear that from all of you out there too!

Missy: Thanks for your input

Terry: That is what I am wondering...will the markets that began the party leave the party first? We late bloomers are still trying to get sellers to price to sell based upon the reality of our sales, not on old comps.

Colleen: Yes, I agree...very low prices...but it's hard to convince sellers when our average prices haven't gone down that much yet.

Brian: Agreed...we need to match up our supply and demand. New construction for us is now only 30% of our inventory so it's up to the resales to start pricing lower and selling.

Rita: Thank you so much for sharing about your local market. It sounds a lot like mine. I'm afraid that we are going to be flooded with new listings in the spring too!

Sharon: Thanks for your input!

Think about it from a buyer's perspective, who does not have "skin in the game" yet.

If I know that homes in a neighborhood were selling for $140,000 in 2003, why would I pay $190k - $210k today? I would think twice at paying $160,000.

Just look at the spread on mortgage rates vs. mortgage bonds! Banks freely admit that they are charging very high rates to borrow, because they anticipate prices falling further. Why would I pay more to borrow money on a depreciating asset?

It is frustrating, it is almost as if sellers (and their Realtors) think buyers are a bunch of morons.

Col Swindle

Deb: Thanks...I couldn't resist the picture:)

Emily: Yes, I agree!

Leolinda: Well, it is good to hear that people are buying...are your prices going down too?

Carole: Removed the spam...thanks!

Debe: Excellent comment. Yes, that's the question...how long. I honestly don't see our areas improving until 2010 unless something really dramatic happens in the national economy. And, in hand with that I think our greater Charlotte area/Lake Norman prices are going to go down further than this year's modest 5%. I'm seeing it particularly in new construction and expect it to move to resales soon.

Roland: You are very fortunate!

Jennifer: Yes, more price reductions!

Christine: Thanks for that input. That is what I have been wondering since we haven't had a large number of short sales and foreclosures our prices are remaining higher but I have a feeling that will change very soon!

Susie: Yes, it's hard to know with the world-wide financial crisis how much we can expect our markets to be impacted beyond the obvious housing struggles. We are beginning to loose jobs and that concerns me as much as the housing slow down.

Margaret: Yes, we are somewhat a vacation/retirement area as poeple do move here for the Lake. We are greatly impacted by slowdowns in other states where buyers still have to sell their homes before moving here. Good point!

Jeff: It was your market numbers that inspired this post. Your inventory seems so much better than ours but I am guessing it is because you have better priced homes which explains your higher sales trends. It does seem to come down to price no matter what, doesn't it?

I've been ignoring the absorption rates as well for the latter part of this year...had figured that I would do a year end comparison and am working on all that...

JAN

2009

Hi Diane, I typed 3 paragraphs and touched something and it disappeared. Go figure. I was suggesting that I believe that this year will prove to be the year of dramatic improvement in the housing markets. I suspect that those absorption rates will melt away as buyers return to markets with interest rates that tending to set records. At least I want to believe , so I do, lol.

JAN

2009

Diane, This is another great one. I hope I get as good as you with my posts. I haven't been on active rain since August. These responses where very interesting. See you tomorrow.

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Lake Norman Real Estate ~ Diane Aurit

Mooresville, NC

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Address: 516-D River Highway Suite 188, Mooresville, NC, 28117

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