Clearly, 2008 is going to be noted as a "transitional" year for any number of reasons relating to economics, politics and international actions. Those of you who know me, understand that I am clearly not as qualified as the talking heads on television and radio to discuss the political and international market issues which developed in 2008 (although that doesn’t stop me from trying).
However, I can provide some insight and overview as to the economic implications for our local real estate market. If you would like to see the actual data reports I reference in this article, follow this link to access both Davis County and Salt Lake County data reports for the fourth quarter 2008. I am an analytical type of person and, as such, tend not to get carried away with the typical "the sky is falling" hyperbole that many fall into. I simply look at the market data (we do operate a quasi-market based economy don’t we?) and see what the market has to say.
In looking at the data for Davis County and more specifically Farmington, it is apparent Farmington held up relatively well compared to Davis County as a whole and, in fact, Davis County did better than the national numbers being reported. Much of this can be attributed to our local economy’s strength relative to the rest of the country. Of course, we have not been immune to the downturn (as you will see in the reports). Overall in Davis County unit sales were down nearly 21% from 2007 (ouch) and down more than 34% from the peak unit sales level reported in 2006.
However, this volume drop off only translated into an average sale price decline of 2.3% for the county. Farmington actually did not see a drop in average sale prices for the full year 2008 (of course it didn't see any increases either). As we look at the quarterly data we do see continued weakness in the housing market. The trend line continued downward in the fourth quarter and many analysts suggest this trend will likely continue into the first and second quarter of 2009. The good news is we are beginning to see inventory levels begin to deplete, either through the closing of transactions as well as sellers (who don't have to sell) removing their properties from the market at this time.
There is data to suggest we may see an increase in inventory levels due to higher foreclosure rates over the course of the next six months. Those projections, however, were done in many cases prior to the Federal Reserve’s recent action to cut interest rates to their lowest level in several decades. This has brought long-term mortgage rates to levels not experienced since the 1950s and 60s. This has helped increase (slightly) demand during the past six months as well as provide an opportunity for struggling homeowners to refinance at more affordable terms. In my last quarterly update I projected a 25% drop in sales activity fourth-quarter 2008 versus 2007 the actual drop was just under 19% (how's that for finding a silver lining in an otherwise dark cloud?). Fourth-quarter residential sales activity in 2008 matches the level last experienced in calendar year 2001 and down 44% from the peak experienced in 2005.
As everyone peers into their crystal balls for 2009, the larger consensus is the US economy should begin to report improvements in economic output by the fourth quarter 2009. If in fact those prognostications are accurate, I expect to see a relatively flat housing market for the next 12 months. This does present opportunities for certain participants in the housing market. In particular, first-time home buyers as well as move-up buyers have an opportunity to acquire their preferred housing option at a much more affordable price point. This should continue so long as the Federal Reserve is not required to adjust interest rates due to potential inflationary signals (not likely given current economic sluggishness).
Overall a tough but not catastrophic 2008 and a forecasted sluggish 2009. In spite of all the talk and reports, people are still buying and selling homes.
Comments(0)